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U.S. Code as of:
01/19/04
Section 1. Tax imposed
(a) Married individuals filing joint returns and surviving spouses
There is hereby imposed on the taxable income of -
(1) every married individual (as defined in section 7703) who
makes a single return jointly with his spouse under section 6013,
and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table:
If taxable income is: The tax is:
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Not over $36,900 15% of taxable income.
Over $36,900 but not over $5,535, plus 28% of the excess over
$89,150 $36,900.
Over $89,150 but not over $20,165, plus 31% of the excess
$140,000 over $89,150.
Over $140,000 but not $35,928.50, plus 36% of the excess
over $250,000 over $140,000.
Over $250,000 $75,528.50, plus 39.6% of the
excess over $250,000.
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(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:
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Not over $29,600 15% of taxable income.
Over $29,600 but not over $4,440, plus 28% of the excess over
$76,400 $29,600.
Over $76,400 but not over $17,544, plus 31% of the excess
$127,500 over $76,400.
Over $127,500 but not $33,385, plus 36% of the excess
over $250,000 over $127,500.
Over $250,000 $77,485, plus 39.6% of the excess
over $250,000.
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(c) Unmarried individuals (other than surviving spouses and heads
of households)
There is hereby imposed on the taxable income of every individual
(other than a surviving spouse as defined in section 2(a) or the
head of a household as defined in section 2(b)) who is not a
married individual (as defined in section 7703) a tax determined in
accordance with the following table:
If taxable income is: The tax is:
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Not over $22,100 15% of taxable income.
Over $22,100 but not over $3,315, plus 28% of the excess over
$53,500 $22,100.
Over $53,500 but not over $12,107, plus 31% of the excess
$115,000 over $53,500.
Over $115,000 but not $31,172, plus 36% of the excess
over $250,000 over $115,000.
Over $250,000 $79,772, plus 39.6% of the excess
over $250,000.
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(d) Married individuals filing separate returns
There is hereby imposed on the taxable income of every married
individual (as defined in section 7703) who does not make a single
return jointly with his spouse under section 6013, a tax determined
in accordance with the following table:
If taxable income is: The tax is:
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Not over $18,450 15% of taxable income.
Over $18,450 but not over $2,767.50, plus 28% of the excess
$44,575 over $18,450.
Over $44,575 but not over $10,082.50, plus 31% of the excess
$70,000 over $44,575.
Over $70,000 but not over $17,964.25, plus 36% of the excess
$125,000 over $70,000.
Over $125,000 $37,764.25, plus 39.6% of the
excess over $125,000.
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(e) Estates and trusts
There is hereby imposed on the taxable income of -
(1) every estate, and
(2) every trust,
taxable under this subsection a tax determined in accordance with
the following table:
If taxable income is: The tax is:
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Not over $1,500 15% of taxable income.
Over $1,500 but not over $225, plus 28% of the excess over
$3,500 $1,500.
Over $3,500 but not over $785, plus 31% of the excess over
$5,500 $3,500.
Over $5,500 but not over $1,405, plus 36% of the excess over
$7,500 $5,500.
Over $7,500 $2,125, plus 39.6% of the excess
over $7,500.
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(f) Phaseout of marriage penalty in 15-percent bracket; adjustments
in tax tables so that inflation will not result in tax increases
(1) In general
Not later than December 15 of 1993, and each subsequent
calendar year, the Secretary shall prescribe tables which shall
apply in lieu of the tables contained in subsections (a), (b),
(c), (d), and (e) with respect to taxable years beginning in the
succeeding calendar year.
(2) Method of prescribing tables
The table which under paragraph (1) is to apply in lieu of the
table contained in subsection (a), (b), (c), (d), or (e), as the
case may be, with respect to taxable years beginning in any
calendar year shall be prescribed -
(A) except as provided in paragraph (8), by increasing the
minimum and maximum dollar amounts for each rate bracket for
which a tax is imposed under such table by the cost-of-living
adjustment for such calendar year,
(B) by not changing the rate applicable to any rate bracket
as adjusted under subparagraph (A), and
(C) by adjusting the amounts setting forth the tax to the
extent necessary to reflect the adjustments in the rate
brackets.
(3) Cost-of-living adjustment
For purposes of paragraph (2), the cost-of-living adjustment
for any calendar year is the percentage (if any) by which -
(A) the CPI for the preceding calendar year, exceeds
(B) the CPI for the calendar year 1992.
(4) CPI for any calendar year
For purposes of paragraph (3), the CPI for any calendar year is
the average of the Consumer Price Index as of the close of the
12-month period ending on August 31 of such calendar year.
(5) Consumer Price Index
For purposes of paragraph (4), the term "Consumer Price Index"
means the last Consumer Price Index for all-urban consumers
published by the Department of Labor. For purposes of the
preceding sentence, the revision of the Consumer Price Index
which is most consistent with the Consumer Price Index for
calendar year 1986 shall be used.
(6) Rounding
(A) In general
If any increase determined under paragraph (2)(A), section
63(c)(4), section 68(b)(2) or section 151(d)(4) is not a
multiple of $50, such increase shall be rounded to the next
lowest multiple of $50.
(B) Table for married individuals filing separately
In the case of a married individual filing a separate return,
subparagraph (A) (other than with respect to sections 63(c)(4)
and 151(d)(4)(A)) shall be applied by substituting "$25" for
"$50" each place it appears.
(7) Special rule for certain brackets
(A) Calendar year 1994
In prescribing the tables under paragraph (1) which apply
with respect to taxable years beginning in calendar year 1994,
the Secretary shall make no adjustment to the dollar amounts at
which the 36 percent rate bracket begins or at which the 39.6
percent rate begins under any table contained in subsection
(a), (b), (c), (d), or (e).
(B) Later calendar years
In prescribing tables under paragraph (1) which apply with
respect to taxable years beginning in a calendar year after
1994, the cost-of-living adjustment used in making adjustments
to the dollar amounts referred to in subparagraph (A) shall be
determined under paragraph (3) by substituting "1993" for
"1992".
(8) Phaseout of marriage penalty in 15-percent bracket
(A) In general
With respect to taxable years beginning after December 31,
2002, in prescribing the tables under paragraph (1) -
(i) the maximum taxable income in the 15-percent rate
bracket in the table contained in subsection (a) (and the
minimum taxable income in the next higher taxable income
bracket in such table) shall be the applicable percentage of
the maximum taxable income in the 15-percent rate bracket in
the table contained in subsection (c) (after any other
adjustment under this subsection), and
(ii) the comparable taxable income amounts in the table
contained in subsection (d) shall be 1/2 of the amounts
determined under clause (i).
(B) Applicable percentage
For purposes of subparagraph (A), the applicable percentage
shall be determined in accordance with the following table:
For taxable years beginning The applicable
in calendar year - percentage is -
2003 and 2004 200
2005 180
2006 187
2007 193
2008 and thereafter 200.
(C) Rounding
If any amount determined under subparagraph (A)(i) is not a
multiple of $50, such amount shall be rounded to the next
lowest multiple of $50.
(g) Certain unearned income of minor children taxed as if parent's
income
(1) In general
In the case of any child to whom this subsection applies, the
tax imposed by this section shall be equal to the greater of -
(A) the tax imposed by this section without regard to this
subsection, or
(B) the sum of -
(i) the tax which would be imposed by this section if the
taxable income of such child for the taxable year were
reduced by the net unearned income of such child, plus
(ii) such child's share of the allocable parental tax.
(2) Child to whom subsection applies
This subsection shall apply to any child for any taxable year
if -
(A) such child has not attained age 14 before the close of
the taxable year, and
(B) either parent of such child is alive at the close of the
taxable year.
(3) Allocable parental tax
For purposes of this subsection -
(A) In general
The term "allocable parental tax" means the excess of -
(i) the tax which would be imposed by this section on the
parent's taxable income if such income included the net
unearned income of all children of the parent to whom this
subsection applies, over
(ii) the tax imposed by this section on the parent without
regard to this subsection.
For purposes of clause (i), net unearned income of all children
of the parent shall not be taken into account in computing any
exclusion, deduction, or credit of the parent.
(B) Child's share
A child's share of any allocable parental tax of a parent
shall be equal to an amount which bears the same ratio to the
total allocable parental tax as the child's net unearned income
bears to the aggregate net unearned income of all children of
such parent to whom this subsection applies.
(C) Special rule where parent has different taxable year
Except as provided in regulations, if the parent does not
have the same taxable year as the child, the allocable parental
tax shall be determined on the basis of the taxable year of the
parent ending in the child's taxable year.
(4) Net unearned income
For purposes of this subsection -
(A) In general
The term "net unearned income" means the excess of -
(i) the portion of the adjusted gross income for the
taxable year which is not attributable to earned income (as
defined in section 911(d)(2)), over
(ii) the sum of -
(I) the amount in effect for the taxable year under
section 63(c)(5)(A) (relating to limitation on standard
deduction in the case of certain dependents), plus
(II) the greater of the amount described in subclause (I)
or, if the child itemizes his deductions for the taxable
year, the amount of the itemized deductions allowed by this
chapter for the taxable year which are directly connected
with the production of the portion of adjusted gross income
referred to in clause (i).
(B) Limitation based on taxable income
The amount of the net unearned income for any taxable year
shall not exceed the individual's taxable income for such
taxable year.
(5) Special rules for determining parent to whom subsection
applies
For purposes of this subsection, the parent whose taxable
income shall be taken into account shall be -
(A) in the case of parents who are not married (within the
meaning of section 7703), the custodial parent (within the
meaning of section 152(e)) of the child, and
(B) in the case of married individuals filing separately, the
individual with the greater taxable income.
(6) Providing of parent's TIN
The parent of any child to whom this subsection applies for any
taxable year shall provide the TIN of such parent to such child
and such child shall include such TIN on the child's return of
tax imposed by this section for such taxable year.
(7) Election to claim certain unearned income of child on
parent's return
(A) In general
If -
(i) any child to whom this subsection applies has gross
income for the taxable year only from interest and dividends
(including Alaska Permanent Fund dividends),
(ii) such gross income is more than the amount described in
paragraph (4)(A)(ii)(I) and less than 10 times the amount so
described,
(iii) no estimated tax payments for such year are made in
the name and TIN of such child, and no amount has been
deducted and withheld under section 3406, and
(iv) the parent of such child (as determined under
paragraph (5)) elects the application of subparagraph (B),
such child shall be treated (other than for purposes of this
paragraph) as having no gross income for such year and shall
not be required to file a return under section 6012.
(B) Income included on parent's return
In the case of a parent making the election under this
paragraph -
(i) the gross income of each child to whom such election
applies (to the extent the gross income of such child exceeds
twice the amount described in paragraph (4)(A)(ii)(I)) shall
be included in such parent's gross income for the taxable
year,
(ii) the tax imposed by this section for such year with
respect to such parent shall be the amount equal to the sum
of -
(I) the amount determined under this section after the
application of clause (i), plus
(II) for each such child, 10 percent of the lesser of the
amount described in paragraph (4)(A)(ii)(I) or the excess
of the gross income of such child over the amount so
described, and
(iii) any interest which is an item of tax preference under
section 57(a)(5) of the child shall be treated as an item of
tax preference of such parent (and not of such child).
(C) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
paragraph.
(h) Maximum capital gains rate
(1) In general
If a taxpayer has a net capital gain for any taxable year, the
tax imposed by this section for such taxable year shall not
exceed the sum of -
(A) a tax computed at the rates and in the same manner as if
this subsection had not been enacted on the greater of -
(i) taxable income reduced by the net capital gain; or
(ii) the lesser of -
(I) the amount of taxable income taxed at a rate below 25
percent; or
(II) taxable income reduced by the adjusted net capital
gain;
(B) 5 percent (0 percent in the case of taxable years
beginning after 2007) of so much of the adjusted net capital
gain (or, if less, taxable income) as does not exceed the
excess (if any) of -
(i) the amount of taxable income which would (without
regard to this paragraph) be taxed at a rate below 25
percent, over
(ii) the taxable income reduced by the adjusted net capital
gain;
(C) 15 percent of the adjusted net capital gain (or, if less,
taxable income) in excess of the amount on which a tax is
determined under subparagraph (B);
(D) 25 percent of the excess (if any) of -
(i) the unrecaptured section 1250 gain (or, if less, the
net capital gain), over
(ii) the excess (if any) of -
(I) the sum of the amount on which tax is determined
under subparagraph (A) plus the net capital gain, over
(II) taxable income; and
(E) 28 percent of the amount of taxable income in excess of
the sum of the amounts on which tax is determined under the
preceding subparagraphs of this paragraph.
(2) Net capital gain taken into account as investment income
For purposes of this subsection, the net capital gain for any
taxable year shall be reduced (but not below zero) by the amount
which the taxpayer takes into account as investment income under
section 163(d)(4)(B)(iii).
(3) Adjusted net capital gain
For purposes of this subsection, the term "adjusted net capital
gain" means the sum of -
(A) net capital gain (determined without regard to paragraph
(11)) reduced (but not below zero) by the sum of -
(i) unrecaptured section 1250 gain, and
(ii) 28-percent rate gain, plus
(B) qualified dividend income (as defined in paragraph (11)).
(4) 28-percent rate gain
For purposes of this subsection, the term "28-percent rate
gain" means the excess (if any) of -
(A) the sum of -
(i) collectibles gain; and
(ii) section 1202 gain, over
(B) the sum of -
(i) collectibles loss;
(ii) the net short-term capital loss; and
(iii) the amount of long-term capital loss carried under
section 1212(b)(1)(B) to the taxable year.
(5) Collectibles gain and loss
For purposes of this subsection -
(A) In general
The terms "collectibles gain" and "collectibles loss" mean
gain or loss (respectively) from the sale or exchange of a
collectible (as defined in section 408(m) without regard to
paragraph (3) thereof) which is a capital asset held for more
than 1 year but only to the extent such gain is taken into
account in computing gross income and such loss is taken into
account in computing taxable income.
(B) Partnerships, etc.
For purposes of subparagraph (A), any gain from the sale of
an interest in a partnership, S corporation, or trust which is
attributable to unrealized appreciation in the value of
collectibles shall be treated as gain from the sale or exchange
of a collectible. Rules similar to the rules of section 751
shall apply for purposes of the preceding sentence.
(6) Unrecaptured section 1250 gain
For purposes of this subsection -
(A) In general
The term "unrecaptured section 1250 gain" means the excess
(if any) of -
(i) the amount of long-term capital gain (not otherwise
treated as ordinary income) which would be treated as
ordinary income if section 1250(b)(1) included all
depreciation and the applicable percentage under section
1250(a) were 100 percent, over
(ii) the excess (if any) of -
(I) the amount described in paragraph (5)(B); over
(II) the amount described in paragraph (5)(A).
(B) Limitation with respect to section 1231 property
The amount described in subparagraph (A)(i) from sales,
exchanges, and conversions described in section 1231(a)(3)(A)
for any taxable year shall not exceed the net section 1231 gain
(as defined in section 1231(c)(3)) for such year.
(7) Section 1202 gain
For purposes of this subsection, the term "section 1202 gain"
means the excess of -
(A) the gain which would be excluded from gross income under
section 1202 but for the percentage limitation in section
1202(a), over
(B) the gain excluded from gross income under section 1202.
(8) Coordination with recapture of net ordinary losses under
section 1231
If any amount is treated as ordinary income under section
1231(c), such amount shall be allocated among the separate
categories of net section 1231 gain (as defined in section
1231(c)(3)) in such manner as the Secretary may by forms or
regulations prescribe.
(9) Regulations
The Secretary may prescribe such regulations as are appropriate
(including regulations requiring reporting) to apply this
subsection in the case of sales and exchanges by pass-thru
entities and of interests in such entities.
(10) Pass-thru entity defined
For purposes of this subsection, the term "pass-thru entity"
means -
(A) a regulated investment company;
(B) a real estate investment trust;
(C) an S corporation;
(D) a partnership;
(E) an estate or trust;
(F) a common trust fund;
(G) a foreign investment company which is described in
section 1246(b)(1) and for which an election is in effect under
section 1247; and
(H) a qualified electing fund (as defined in section 1295).
(11) Dividends taxed as net capital gain
(A) In general
For purposes of this subsection, the term "net capital gain"
means net capital gain (determined without regard to this
paragraph) increased by qualified dividend income.
(B) Qualified dividend income
For purposes of this paragraph -
(i) In general
The term "qualified dividend income" means dividends
received during the taxable year from -
(I) domestic corporations, and
(II) qualified foreign corporations.
(ii) Certain dividends excluded
Such term shall not include -
(I) any dividend from a corporation which for the taxable
year of the corporation in which the distribution is made,
or the preceding taxable year, is a corporation exempt from
tax under section 501 or 521,
(II) any amount allowed as a deduction under section 591
(relating to deduction for dividends paid by mutual savings
banks, etc.), and
(III) any dividend described in section 404(k).
(iii) Coordination with section 246(c)
Such term shall not include any dividend on any share of
stock -
(I) with respect to which the holding period requirements
of section 246(c) are not met (determined by substituting
in section 246(c)(1) "60 days" for "45 days" each place it
appears and by substituting "120-day period" for "90-day
period"), or
(II) to the extent that the taxpayer is under an
obligation (whether pursuant to a short sale or otherwise)
to make related payments with respect to positions in
substantially similar or related property.
(C) Qualified foreign corporations
(i) In general
Except as otherwise provided in this paragraph, the term
"qualified foreign corporation" means any foreign corporation
if -
(I) such corporation is incorporated in a possession of
the United States, or
(II) such corporation is eligible for benefits of a
comprehensive income tax treaty with the United States
which the Secretary determines is satisfactory for purposes
of this paragraph and which includes an exchange of
information program.
(ii) Dividends on stock readily tradable on United States
securities market
A foreign corporation not otherwise treated as a qualified
foreign corporation under clause (i) shall be so treated with
respect to any dividend paid by such corporation if the stock
with respect to which such dividend is paid is readily
tradable on an established securities market in the United
States.
(iii) Exclusion of dividends of certain foreign corporations
Such term shall not include any foreign corporation which
for the taxable year of the corporation in which the dividend
was paid, or the preceding taxable year, is a foreign
personal holding company (as defined in section 552), a
foreign investment company (as defined in section 1246(b)),
or a passive foreign investment company (as defined in
section 1297).
(iv) Coordination with foreign tax credit limitation
Rules similar to the rules of section 904(b)(2)(B) shall
apply with respect to the dividend rate differential under
this paragraph.
(D) Special rules
(i) Amounts taken into account as investment income
Qualified dividend income shall not include any amount
which the taxpayer takes into account as investment income
under section 163(d)(4)(B).
(ii) Extraordinary dividends
If an individual receives, with respect to any share of
stock, qualified dividend income from 1 or more dividends
which are extraordinary dividends (within the meaning of
section 1059(c)), any loss on the sale or exchange of such
share shall, to the extent of such dividends, be treated as
long-term capital loss.
(iii) Treatment of dividends from regulated investment
companies and real estate investment trusts
A dividend received from a regulated investment company or
a real estate investment trust shall be subject to the
limitations prescribed in sections 854 and 857.
(i) Rate reductions after 2000
(1) 10-percent rate bracket
(A) In general
In the case of taxable years beginning after December 31,
2000 -
(i) the rate of tax under subsections (a), (b), (c), and
(d) on taxable income not over the initial bracket amount
shall be 10 percent, and
(ii) the 15 percent rate of tax shall apply only to taxable
income over the initial bracket amount but not over the
maximum dollar amount for the 15-percent rate bracket.
(B) Initial bracket amount
For purposes of this paragraph, the initial bracket amount is
-
(i) $14,000 ($12,000 in the case of taxable years beginning
after December 31, 2004, and before January 1, 2008) in the
case of subsection (a),
(ii) $10,000 in the case of subsection (b), and
(iii) 1/2 the amount applicable under clause (i) (after
adjustment, if any, under subparagraph (C)) in the case of
subsections (c) and (d).
(C) Inflation adjustment
In prescribing the tables under subsection (f) which apply
with respect to taxable years beginning in calendar years after
2000 -
(i) except as provided in clause (ii), the Secretary shall
make no adjustment to the initial bracket amounts for any
taxable year beginning before January 1, 2009,
(ii) there shall be an adjustment under subsection (f) of
such amounts which shall apply only to taxable years
beginning in 2004, and such adjustment shall be determined
under subsection (f)(3) by substituting "2002" for "1992" in
subparagraph (B) thereof,
(iii) the cost-of-living adjustment used in making
adjustments to the initial bracket amounts for any taxable
year beginning after December 31, 2008, shall be determined
under subsection (f)(3) by substituting "2007" for "1992" in
subparagraph (B) thereof, and
(iv) the adjustments under clauses (ii) and (iii) shall not
apply to the amount referred to in subparagraph (B)(iii).
If any amount after adjustment under the preceding sentence is
not a multiple of $50, such amount shall be rounded to the next
lowest multiple of $50.
(D) Coordination with acceleration of 10 percent rate bracket
benefit for 2001
This paragraph shall not apply to any taxable year to which
section 6428 applies.
(2) Reductions in rates after June 30, 2001
In the case of taxable years beginning in a calendar year after
2000, the corresponding percentage specified for such calendar
year in the following table shall be substituted for the
otherwise applicable tax rate in the tables under subsections
(a), (b), (c), (d), and (e).
The corresponding percentages shall be substituted
for
the following percentages:
28% 31% 36% 39.6%
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2001 27.5% 30.5% 35.5% 39.1%
2002 27.0% 30.0% 35.0% 38.6%
2003 and thereafter 25.0% 28.0% 33.0% 35.0%
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(3) Adjustment of tables
The Secretary shall adjust the tables prescribed under
subsection (f) to carry out this subsection.
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