Internal Revenue Code section 1

Section 1 of the Internal Revenue Code (26 U.S.C. § 1 or simply IRC §1), titled "Tax Imposed" is the law contained in the Internal Revenue Code that imposes a federal income tax on the taxable income of individuals in the United States of America, and sets forth the amount of the tax to be paid. This section "imposes an income tax on the income of every individual who is a citizen or resident of the United States", and also provides for the taxation some non-resident aliens.^[1] The section further contains tables from which the exact tax owed can be computed based on the marital status and filing options of the taxpayer.^[1] The section also imposes an income tax on income earned by certain estates and trusts. A similar tax on corporations is set forth in IRC §11.

Special provisions are made in section, 1(g) (previously section 1.1(i)1T), for "unearned income of certain minor children", also known as the Kiddie tax.^{[1] [2]} Another highly controverted provision in the section, 1(h), provides the rules for taxation of capital gains.^{[1] [3]}

Since the consolidation of individual tax rates into section 1 in 1954, the section has been amended dozens of times through at least twenty-nine separate acts of Congress, reflecting repeated revisions to federal income tax rates, filing statuses, and related provisions.^{[4] [5]} Amendments have frequently focused on the number of tax brackets and the rate of taxation in each bracket. Points of dispute arising from the section have included the so-called "marriage penalty" (a circumstance in which married households with multiple income earners tend to pay a higher rate than households of unmarried people),^[6] and the so-called "dividend tax" (a circumstance where corporate payouts to shareholders are taxed upon distribution despite previously having been taxed when the income was received by the corporation).^[7]

On February 10, 1939, the various tax statutes of the United States were recodified by an Act of Congress as the "Internal Revenue Code" ("IRC"; later known as the "Internal Revenue Code of 1939"). The 1939 Code was published as Volume 53, Part I, of the United States Statutes at Large and as Title 26 of the United States Code. On August 16, 1954, in connection with a general overhaul of the Internal Revenue Service, the IRC was greatly reorganized and expanded by the 83rd United States Congress (by Chapter 736, Pub. L. 83–591), with Ward M. Hussey as the principal drafter. To prevent confusion with the 1939 Code, the new version was thereafter referred to as the "Internal Revenue Code of 1954" and the prior version as the "Internal Revenue Code of 1939". The lettering and numbering of subtitles and sections were completely changed, with provisions imposing the income tax that were previously distributed in sections 11 and 12 of the 1939 code being consolidated into the new section 1.^[8]

President Ronald Reagan made simplification of the tax code the central focus of his second term domestic agenda.^[9] Working with Speaker of the House Tip O'Neill, a Democrat who also favored tax reform, Reagan overcame significant opposition from members of Congress in both parties to pass the Tax Reform Act of 1986.^[10] The bill was signed by Reagan on October 22.^{[11] [12]} The top tax rate for individuals for tax year 1987 was lowered from 50% to 33%.^[13] Many lower level tax brackets were consolidated, and the upper income level of the bottom rate (married filing jointly) was increased from 5,720ドル/year to 29,750ドル/year. This package ultimately consolidated tax brackets from fifteen levels of income to four levels of income.^[14]

Within the layout of the IRC, section 1 appears as follows:

• Subtitle A – Income Taxes (§§ 1–1563)
  • Chapter 1 – Normal Taxes and Surtaxes (§§ 1–1400T)
    • Subchapter A – Determination of Tax Liability (§§ 1–59A)
      • Part I – Tax on Individuals (§§ 1–5)
        • Section 1 – Tax imposed

Section 1 imposes the Federal income tax on the "taxable income" of individuals (mainly in subsections (a) through (d)),^{[1] [3] [15]} and on the taxable income of certain estates and trusts (subsection e). The section sets forth the formula for what amount of taxable income must be paid to the United States. The U.S. federal income tax is structured progressively: as taxable income rises, the marginal tax rate applied to additional income increases, so higher-income individuals pay a larger percentage of their income in tax.^[16] This progressivity aims to reflect taxpayers’ differing ability to pay and to provide a degree of income redistribution through the tax code.^[17]

For individuals, section 1 divides income earners into categories depending on whether they are married individuals filing jointly, or their surviving spouses (section 1(a)); heads of households (section 1(b)); unmarried individuals (section 1(c)); or married individuals filing separately (section 1(d)).^[15] Under the original federal income tax enacted in 1913, married taxpayers were taxed separately under the same progressive rate schedule as unmarried individuals. Married couples were not permitted to file joint returns until 1918. The modern filing-status structure developed gradually in response to perceived inequities between taxpayers in community property states compared to those in common-law-property states. The Revenue Act of 1948 amended the section to incorporate income-splitting benefits nationally for married couples filing jointly.^[15] Section 1(e) provides for taxation of income received by estates and trusts, but should not be confused with estate tax imposed upon property of the recently deceased, which is established elsewhere in the IRC. In 1969, Congress expanded the number of tax rate schedules from two to four, adjusting rates so that unmarried taxpayers would not pay more than 120% of the liability of married couples with the same income.^[15]

Subsections (a) through (d) actually list the tax rate schedules for the year 1993. Subsection (f) directs the Internal Revenue Service to adjust these baseline figures for inflation and release updated brackets for each subsequent taxable year. Based in part on the provisions of subsections (f) and (i), the tax rate schedules for 1994 and subsequent years (reflecting, among other things, tax rate changes and cost of living adjustments) are therefore promulgated by the IRS. In other words, the official tax rate schedules for years 1994 and thereafter are no longer found in the text of section 1 itself. Tax rates are, to a degree, indexed to inflation to prevent lower-income earners from being pushed into higher tax brackets over time.^[3]

The fact that married couples where both partners have an income still generally pay income taxes at a higher rate under section 1 is generally known as the marriage penalty.^[6] In 1981, Congress tried to mitigate the marriage penalty through a deduction for two-earner married couples, but this was repealed in 1986.^[15] Various constitutional challenges to the filing-status and rate-schedule structure have been brought through lawsuits asserting equal protection and due process theories, but these have not prevailed.^[15]

It has been asserted that it is mathematically impossible for a tax system to have all of (a) marginal tax rates that increase with income, (b) joint filing with (full) income splitting for married couples, and (c) combined tax bills that are (entirely) unaffected by two people's marital status.^{[18] [19]} Partial income splitting models allow only a part of the income to be transferred among spouses in order to balance such criteria.

Section 1(h) of the Internal Revenue Code establishes preferential tax rates for certain capital gains and qualified dividend income, an example of the so-called dividend tax. Congress added section 1(h)(11) through the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), extending capital gains treatment to certain dividends received by individual taxpayers.^[7] The legislation sought to reduce the effects of the "double taxation" of corporate earnings, under which profits are taxed both at the corporate level and again when distributed to shareholders as dividends. Under section 1(h)(11), "qualified dividend income" from domestic corporations and certain foreign corporations became taxable at the same reduced rates applicable to long-term capital gains rather than at ordinary income tax rates.^[7] Preferential treatment of dividend income under section 1(h)(11) generated substantial debate concerning its effects on economic growth and corporate behavior. Supporters argued that lower dividend tax rates would encourage corporations to distribute earnings to shareholders and promote investment, while critics questioned whether the reductions would significantly affect corporate payout decisions.^{[7] [20]}

Because marginal rates are higher for high-income earners, shifting income from a high-bracket taxpayer to someone taxed at a lower rate (e.g., a child with little or no other income) could substantially reduce a family's overall tax burden. Such shifting, if unrestricted, would undercut the redistributive goal of a progressive tax system. Recognizing that incentive, as part of the Tax Reform Act of 1986, Congress enacted a special rule informally called the "kiddie tax", requiring certain unearned income of children to be taxed at the parent's marginal rate.^[21] Thus, the "kiddie tax" exists as an anti-avoidance measure: it preserves the intended progressivity of the federal income-tax system while preventing families from exploiting lower child-income tax rates by shifting passive or investment income to children, who often face lower tax rates.^[22]

The kiddie tax has undergone substantial changes since its implementation. Enacted as part of the Tax Reform Act of 1986 and first applied to tax years beginning after December 31, 1986,^[23] the original rule was codified in Internal Revenue Code § 1(i) and applied only to children under age 14.^{[23] [24]} In 1990, the Omnibus Budget Reconciliation Act of 1990 redesignated the provision as IRC § 1(g).^[25] A 2006 amendment raised the age threshold to include dependents under age 18, and in 2007, the Small Business and Work Opportunity Tax Act of 2007 further extended coverage to full-time students under age 24 who do not provide more than half of their support with earned income.^[24]

Major structural changes were enacted by the Tax Cuts and Jobs Act of 2017 (TCJA), which temporarily taxed a child’s unearned income using estate and trust tax brackets for tax years 2018 and 2019 — often resulting in higher taxes for affected families.^[26] The change generated significant criticism, particularly regarding its impact on survivors receiving military benefits. In response, the SECURE Act of 2019 repealed the TCJA calculation and restored the use of parents’ marginal tax rates, retroactive to 2018. Beginning in 2020, the Kiddie Tax returned to its pre-TCJA framework.^[26]

For example, for the year 1993, §1(b) states:

(b) Heads of households

There is hereby imposed on the taxable income of every head of a household (as defined in section 2 (b)) a tax determined in accordance with the following table:

If taxable income is: The tax is:

Not over 29,600ドル 15% of taxable income.

Over 29,600ドル but not over 76,400ドル 4,440,ドル plus 28% of the excess over 29,600ドル.

Over 76,400ドル but not over 127,500ドル 17,544,ドル plus 31% of the excess over 76,400ドル.

Over 127,500ドル but not over 250,000ドル 33,385,ドル plus 36% of the excess over 127,500ドル.

Over 250,000ドル 77,485,ドル plus 39.6% of the excess over 250,000ドル.

People meeting the description of a "head of a household" with a taxable income of 50,000ドル for the year 1993 would have looked to the table to see that their income falls within the category of persons earning "Over 29,600ドル but not over 76,400ドル". The tax would be:

4,440,ドル plus 28% of the excess over 29,600ドル

which is equal to

4,440,ドル plus 28% of (50,000ドル – 29,600ドル)

50,000ドル minus 29,600ドル equals 20,400,ドル and 28% of 20,400ドル is 5,712,ドル so the total tax due on an income of 50,000ドル would be (4,400ドル + 5,712ドル), for a final total of 10,152ドル. By comparison, a person realizing one million dollars of taxable income would have been assessed 374,485ドル for the same period (77,485ドル + 39.6% (1,000,000ドル–250,000ドル)). A base of 50,000ドル taxable income would thus yield an after-tax income of 39,848,ドル while a base 1,000,000ドル income would yield an after-tax income of 625,515ドル.

These, however, are base figures, to which a number of important variables are applied. For example, the tax applies only to taxable income, which is defined in IRC §63 as gross income minus allowable deductions to gross income, personal exemptions, and either the standard deduction or itemized deductions. Gross income, in turn, is defined in IRC §61. Since taxpayers may make a variety of deductions, such as the deduction for selling a piece of property at a loss allowed under IRC §165, a taxpayer's gross income will be higher than his taxable income.

Based on the cost of living adjustment and tax rate change provisions of section 1, the same schedule for a "head of household" for the year 2006 (i.e., for tax returns due April 15, 2007) was as follows:^[27]

Using the same calculations as in the section above, a 50,000ドル earner would pay 7,857ドル.50 in income tax as of 2006, a reduction of 2,294ドル.50; the 1,000,000ドル earner would pay 326,864,ドル a reduction of 47,621ドル.

By contrast, the 2005 tax rate schedule for estates and trusts (not found in the text of the statute, but in IRS publications), provides for relatively high marginal tax rates on relatively low levels of income:^[28]

Changes to the tax code are frequently aimed at the provisions of IRC §1, with adjustments being made to the percentage of income taxed in each category, and the dollar amounts which trigger a higher level of taxation.

• Capital gains tax in the United States

• https://uscode.house.gov/view.xhtml?req=(title:26%20section:1%20edition:prelim)

• Internal Revenue Code

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