26 U.S.C. § 1 — Tax imposed

This is a long, heavily amended section. It imposes the basic federal income tax and then modifies that tax in several later subsections. It covers every top-level lettered subsection below. (a) Married individuals filing joint returns and surviving spouses. A tax applies to the taxable income of every married individual who files one joint return with their spouse (as "married individual" is defined in section 7703, using the joint-return rule in section 6013), and to every surviving spouse (as defined in section 2(a)). The tax comes from a table: income up to $36,900 is taxed at 15%. Income from $36,900 to $89,150 is taxed at $5,535, plus 28% of the amount over $36,900. Income from $89,150 to $140,000 is taxed at $20,165, plus 31% of the amount over $89,150. Income from $140,000 to $250,000 is taxed at $35,928.50, plus 36% of the amount over $140,000. Income over $250,000 is taxed at $75,528.50, plus 39.6% of the amount over $250,000. (b) Heads of households. A similar tax applies to every head of household, as defined in section 2(b). Table: up to $29,600 at 15%. $29,600 to $76,400: $4,440 plus 28% of the excess over $29,600. $76,400 to $127,500: $17,544 plus 31% of the excess over $76,400. $127,500 to $250,000: $33,385 plus 36% of the excess over $127,500. Over $250,000: $77,485 plus 39.6% of the excess over $250,000. (c) Unmarried individuals (other than surviving spouses and heads of households). This table applies to every individual who is not a "married individual" under section 7703, and who is not a surviving spouse or head of household. Table: up to $22,100 at 15%. $22,100 to $53,500: $3,315 plus 28% of the excess. $53,500 to $115,000: $12,107 plus 31% of the excess. $115,000 to $250,000: $31,172 plus 36% of the excess. Over $250,000: $79,772 plus 39.6% of the excess. (d) Married individuals filing separate returns. This table applies to a married individual (section 7703) who does not file a joint return under section 6013. Table: up to $18,450 at 15%. $18,450 to $44,575: $2,767.50 plus 28% of the excess. $44,575 to $70,000: $10,082.50 plus 31% of the excess. $70,000 to $125,000: $17,964.25 plus 36% of the excess. Over $125,000: $37,764.25 plus 39.6% of the excess. (e) Estates and trusts. This table applies to every estate and every trust taxable under this subsection. Table: up to $1,500 at 15%. $1,500 to $3,500: $225 plus 28% of the excess. $3,500 to $5,500: $785 plus 31% of the excess. $5,500 to $7,500: $1,405 plus 36% of the excess. Over $7,500: $2,125 plus 39.6% of the excess. (f) Phaseout of the marriage penalty in the 15-percent bracket; inflation adjustments to the tables. (1) Each year, no later than December 15 (starting in 1993), the Secretary must issue new tables to use in place of the ones in (a) through (e), for taxable years beginning the following calendar year. (2) Those new tables are built by raising the dollar amounts that mark the start and end of each bracket by a cost-of-living adjustment — using a special substitution rule for the 36% and 39.6% brackets — while keeping each bracket's rate the same, and then adjusting the flat-dollar tax amounts to match. (3) The "cost-of-living adjustment" for a year is how much the C-CPI-U for the prior calendar year exceeds the 2016 CPI multiplied by a ratio set out in paragraph (3)(B); when some other part of this title substitutes a later base year for "2016," the calculation shifts to match that substitution. (4) "CPI" for a calendar year means the average Consumer Price Index over the 12 months ending August 31 of that year. (5) "Consumer Price Index" means the latest CPI for all-urban consumers published by the Department of Labor, using whichever revision is most consistent with the 1986 CPI. (6) "C-CPI-U" means the Chained Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, using the latest values published as of when the Bureau first releases its August figure for the prior year, averaged the same way as the CPI. (7) Any increase figured under paragraph (2)(A), or under section 63(c)(4), 68(b)(2), or 151(d)(4), that isn't a multiple of $50 gets rounded down to the next lowest $50. For a married person filing separately, $25 is used instead of $50 in most cases (though not for the section 63(c)(4) and 151(d)(4)(A) amounts). (8) For taxable years beginning after December 31, 2003, when the Secretary prescribes these tables, the top dollar amount of the 15% bracket for joint filers (subsection (a)) must equal 200% of the top dollar amount of the 15% bracket for single filers (subsection (c)), and the comparable amount for separate filers (subsection (d)) must be half of that joint-filer amount. (g) Certain unearned income of children taxed as if it were the parent's income. (1) For a child this subsection applies to, the child's tax is whichever is larger: the tax that would apply without this subsection, or the tax on the child's income after subtracting the child's "net unearned income," plus the child's share of the "allocable parental tax." (2) This subsection applies to a child for a year if: the child had not turned 18 by year's end, or had turned 18 but still meets the age test in section 152(c)(3) and earned (under section 911(d)(2)) no more than half of their own support (under section 152(c)(1)(D), applying section 152(f)(5)); and at least one of the child's parents is alive at year's end; and the child does not file a joint return for the year. (3) "Allocable parental tax" is the extra tax the parent would owe if the parent's taxable income included the net unearned income of all the parent's children this subsection covers, compared to the parent's actual tax without that addition — the parent's own exclusions, deductions, and credits are not recomputed for this purpose. Each child's share of that extra tax is proportional to that child's net unearned income compared to the combined net unearned income of all the parent's covered children. If the parent's tax year differs from the child's, the calculation uses the parent's tax year that ends within the child's tax year. (4) "Net unearned income" is the part of adjusted gross income not attributable to earned income (as defined in section 911(d)(2)), minus the sum of: the section 63(c)(5)(A) limited standard-deduction amount for certain dependents, and the larger of that same amount or, if the child itemizes, the itemized deductions connected to producing that unearned income. Net unearned income can never exceed the child's own taxable income for the year. Income a child receives from a "qualified disability trust" (section 642(b)(2)(C)(ii)) under sections 652 and 662 counts as the child's earned income for this paragraph. (5) The "parent" whose income counts is the custodial parent (section 152(e)) if the parents are not married under section 7703, or, for married parents filing separately, whichever spouse has the higher taxable income. (6) The relevant parent must give that parent's taxpayer ID number (TIN) to the child, and the child must include it on the child's own tax return. (7) A parent may instead elect to report a child's unearned income directly on the parent's own return, if: the child's only income for the year is interest and dividends (including Alaska Permanent Fund dividends); that income is more than the amount described in paragraph (4)(A)(ii)(I) but less than ten times that amount; no estimated tax payments were made in the child's name and TIN, and nothing was withheld under section 3406; and the parent elects it. If the parent elects, the child is treated as having no gross income and does not have to file a return under section 6012. On the parent's return: the part of each covered child's gross income above twice the paragraph (4)(A)(ii)(I) amount is added to the parent's gross income; the parent's tax for the year is increased by 10% of the lesser of the paragraph (4)(A)(ii)(I) amount or the child's gross income above that amount, for each such child; and any of the child's interest that is a tax-preference item under section 57(a)(5) is treated as the parent's tax-preference item instead of the child's. The Secretary may issue regulations needed to carry this out. (h) Maximum capital gains rate. (1) If a taxpayer has a net capital gain for the year, the tax under this section cannot exceed the sum of several pieces, computed in layers: ordinary rates apply first to a base amount (the greater of taxable income minus net capital gain, or the smaller of the amount taxed below 25% or taxable income minus adjusted net capital gain); then 0% applies to adjusted net capital gain up to the point where the 25% ordinary bracket would have started; then 15% applies to the next slice, up to where the 39.6% ordinary bracket would have started; then 20% applies to whatever adjusted net capital gain remains; then 25% applies to "unrecaptured section 1250 gain" in excess of certain other amounts already taxed; and finally 28% applies to any remaining taxable income. (2) The net capital gain used in this subsection is reduced (but never below zero) by any amount the taxpayer treats as investment income under section 163(d)(4)(B)(iii). (3) "Adjusted net capital gain" means net capital gain (without regard to paragraph (11)) reduced by unrecaptured section 1250 gain and by "28-percent rate gain," then increased by qualified dividend income. (4) "28-percent rate gain" is collectibles gain plus section 1202 gain, minus collectibles loss, net short-term capital loss, and certain long-term capital loss carried under section 1212(b)(1)(B). (5) "Collectibles gain" and "collectibles loss" mean gain or loss from selling a collectible (as defined in section 408(m), without regard to paragraph (3) of that section) that was a capital asset held more than one year, counted only to the extent it affects gross or taxable income; gain from selling an interest in a partnership, S corporation, or trust that comes from unrealized appreciation in collectibles is treated as collectibles gain too, applying rules similar to section 751. (6) "Unrecaptured section 1250 gain" is the amount of long-term capital gain that would be ordinary income if section 1250(b)(1) covered all depreciation and the section 1250(a) percentage were 100%, minus the excess of the amount described in paragraph (4)(B) over the amount described in paragraph (4)(A); for property covered by section 1231(a)(3)(A), this amount cannot exceed that year's net section 1231 gain. (7) "Section 1202 gain" is the gain that would be excluded under section 1202 if not for its percentage limit, minus the gain actually excluded. (8) If any amount is recaptured as ordinary income under section 1231(c), the Secretary decides by regulation or form how to allocate it among the categories of net section 1231 gain. (9) The Secretary may issue regulations, including reporting requirements, applying this subsection to sales by pass-through entities and interests in them. (10) "Pass-thru entity" means a regulated investment company, a real estate investment trust, an S corporation, a partnership, an estate or trust, a common trust fund, or a qualified electing fund under section 1295. (11) "Net capital gain" for this subsection also includes qualified dividend income. "Qualified dividend income" means dividends received during the year from domestic corporations and "qualified foreign corporations," but excludes: dividends from a corporation that was tax-exempt under section 501 or 521 for the year of distribution or the year before; amounts deducted under section 591 for mutual savings bank dividends; dividends described in section 404(k); and dividends on stock that was not held long enough under a modified version of section 246(c)'s holding-period test (using 60 days instead of 45, and a 121-day period instead of 91), or where the taxpayer must make related payments on similar positions, such as under a short sale. A "qualified foreign corporation" is a foreign corporation incorporated in a U.S. possession, or eligible for benefits under a comprehensive income tax treaty with the U.S. that the Secretary finds satisfactory and that includes an information-exchange program; a foreign corporation not otherwise qualifying is treated as qualified anyway for a dividend if its stock is readily tradable on an established U.S. securities market; but this term never includes a passive foreign investment company (section 1297) for the year the dividend was paid or the year before, nor a corporation that first becomes a "surrogate foreign corporation" under section 7874(a)(2)(B) after this rule's enactment, unless that corporation is treated as domestic under section 7874(b). Rules like those in section 904(b)(2)(B) apply to the dividend-rate difference under this paragraph. Special rules: qualified dividend income excludes any amount treated as investment income under section 163(d)(4)(B); a loss on stock that paid an "extraordinary dividend" (section 1059(c)) that was qualified dividend income is treated as long-term capital loss, up to the amount of that dividend; and dividends from a regulated investment company or REIT are further limited by sections 854 and 857. (i) Rate reductions after 2000. (1) For taxable years beginning after December 31, 2000, income up to an "initial bracket amount" is taxed at 10%, and the 15% rate applies only to income above that amount and up to the top of the 15% bracket. The initial bracket amount is $14,000 for joint filers (subsection (a)), $10,000 for heads of household (subsection (b)), and half of the joint-filer amount (after any adjustment) for single and separate filers (subsections (c) and (d)). Starting with tables for taxable years after 2003, this initial bracket amount is inflation-adjusted using 2002 (or, for the 36% and 39.6% brackets, 2016) as described, rounded down to the next $50, though the head-of-household amount is not adjusted this way. (2) The (a) through (e) tables are relabeled: 28% becomes 25%, 31% becomes 28%, and 36% becomes 33%, everywhere those rates appear. (3) For taxable years beginning after December 31, 2012, a 35% rate applies to the taxpayer's income in the top bracket up to an "applicable threshold," and the 39.6% rate applies only above that threshold. The applicable threshold is $450,000 for joint filers, $425,000 for heads of household, $400,000 for single filers, and half of the joint-filer amount (after adjustment) for separate filers; for years after 2013, each threshold is inflation-adjusted the same way as paragraph (1)(C)(i), but using 2012 instead of 2016 as the base year. (4) The Secretary must adjust the tables under subsection (f) to carry out this subsection. (j) Modifications for taxable years beginning after 2017. (1) For a taxable year beginning after December 31, 2017, subsection (i) does not apply. Instead, this section (other than subsection (i)) works as described in paragraphs (2) through (6) below. (2) New tables replace the ones in (a) through (e). For joint filers and surviving spouses: 10% up to $19,050; $1,905 plus 12% of the excess up to $77,400; $8,907 plus 22% up to $165,000; $28,179 plus 24% up to $315,000; $64,179 plus 32% up to $400,000; $91,379 plus 35% up to $600,000; $161,379 plus 37% above $600,000. For heads of household: 10% up to $13,600; $1,360 plus 12% up to $51,800; $5,944 plus 22% up to $82,500; $12,698 plus 24% up to $157,500; $30,698 plus 32% up to $200,000; $44,298 plus 35% up to $500,000; $149,298 plus 37% above $500,000. For unmarried individuals other than surviving spouses and heads of household: 10% up to $9,525; $952.50 plus 12% up to $38,700; $4,453.50 plus 22% up to $82,500; $14,089.50 plus 24% up to $157,500; $32,089.50 plus 32% up to $200,000; $45,689.50 plus 35% up to $500,000; $150,689.50 plus 37% above $500,000. For married individuals filing separately: the same brackets and rates as unmarried individuals through $157,500, then $32,089.50 plus 32% up to $200,000; $45,689.50 plus 35% up to $300,000; $80,689.50 plus 37% above $300,000. For estates and trusts: 10% up to $2,550; $255 plus 24% up to $9,150; $1,839 plus 35% up to $12,500; $3,011.50 plus 37% above $12,500. Wherever else this title refers to a rate of tax "under subsection (c)," that now means the matching bracket in this new unmarried-individuals table, except that section 3402(q)(1)'s reference to the "third lowest rate" under (c) now means the fourth lowest rate here. (3) These tables applied with no adjustment for taxable years beginning after December 31, 2017 and before January 1, 2019. For taxable years beginning after December 31, 2018, the Secretary must issue updated tables the same way as under subsection (f)(1) and (2) (ignoring subsection (f)(2)(A)'s clauses (i) and (ii)), except: for setting the dollar amounts where any bracket above 12% ends and any bracket above 22% begins, the inflation calculation in subsection (f)(3) uses 2017 instead of 2016 as the base year; the special rounding rule in subsection (f)(7)(B) applies to any unmarried individual other than a surviving spouse or head of household; and the marriage-penalty rule in subsection (f)(8) does not apply. [Paragraph (4) was repealed by Public Law 116-94, division O, title V, section 501(a), December 20, 2019.] (5) The capital-gains rules in subsection (h)(1) are applied with new tests: "below the maximum zero rate amount" replaces the old test tied to the 25% ordinary bracket, and "below the maximum 15-percent rate amount" replaces the old test tied to the 39.6% ordinary bracket. The "maximum zero rate amount" is $77,200 for a joint return or surviving spouse, $51,700 for a head of household, half of the joint-filer amount for any other individual (other than an estate or trust), and $2,600 for an estate or trust. The "maximum 15-percent rate amount" is $479,000 for a joint return or surviving spouse (half that amount for a married person filing separately), $452,400 for a head of household, $425,800 for any other individual, and $12,700 for an estate or trust. For taxable years after 2018, each of these dollar amounts increases by that amount multiplied by the inflation adjustment under subsection (f)(3), but using 2017 instead of 2016 as the base year; any increase that isn't a multiple of $50 is rounded down to the next lowest $50. (6) Section 15 (which governs mid-year changes in tax rates) does not apply to any change in a tax rate caused by this subsection.