H.R. 7937: Working Americans’ Tax Cut Act

The Working Americans’ Tax Cut Act aims to make changes to the Internal Revenue Code of 1986 regarding the taxation of income, particularly for low- and middle-income individuals. Here are the key points of the bill:

Short Title

This Act may be referred to as the Working Americans’ Tax Cut Act.

Alternative Maximum Tax for Low- and Middle-Income Individuals

The bill introduces a new section to the tax code, establishing an alternative maximum tax for qualifying low- and middle-income individuals:

• The maximum tax rate for a qualified individual will be set at 25.5% of their modified adjusted gross income that exceeds a certain cost-of-living exemption.
• A qualifying individual is defined as someone whose modified adjusted gross income is less than 175% of the cost-of-living exemption.
• The cost-of-living exemption is based on annualized cost-of-living wage statistics, varying for different filing statuses, such as:
  • 100% for individuals
  • 200% for joint filers
  • 140% for heads of household
• The cost-of-living wage is calculated using a base figure of $46,000, adjusted for inflation based on the Consumer Price Index for All Urban Consumers (CPI-U).

Surcharge on High-Income Individuals

The bill also imposes a new surcharge on high-income individuals:

• A tax will be applied as follows:
  • 5% on modified adjusted gross income above $1,000,000 and up to $2,000,000
  • 10% on income above $2,000,000 and up to $5,000,000
  • 12% on income above $5,000,000
• These thresholds will be adjusted for inflation in subsequent years.

Inflation Adjustment

The bill outlines how the tax rates and income thresholds for the surcharge will be adjusted for inflation based on the CPI-U, ensuring that they keep pace with rising costs.

Filing Status Considerations

The surcharge will be modified for taxpayers filing jointly, increasing the income thresholds by 50% for each category defined above.

Special Provisions

• There are provisions addressing taxpayers living abroad, as well as certain charitable trusts, ensuring that specific rules apply to them without imposing the surcharge.
• The tax surcharge will not be considered in determining other credits or taxes within the chapter.

Effective Date

The changes introduced in this Act will take effect for taxable years beginning after December 31, 2025.

Relevant Companies

None found.