Congress reduced the top individual income tax rate from 39.6 percent to 37 percent in the Tax Cut and Jobs Act of 2017 (TCJA). If Congress fails to extend TCJA, that top rate comes back for tax year 2026 (or after December 31, 2025).
Some have proposed increasing the tax rate on incomes above $1 million. Such a move would actually be a tax increase on pass-through businesses. Indeed, a third of all income above $1 million in adjusted gross income is business income, as the table below shows.[1]
The table also shows the total number of returns containing a sole proprietorship, a subchapter S corporation, a partnership, and a farming business. These all were considered pass through businesses in tax year 2022.[2]
[1] Internal Revenue Service, Statistics of Income, “Sources of Income, Adjustments, and Tax Items, by Size of Adjusted Gross Income, Tax Year 2022”
[2] A pass through business is a business whose owners pay their taxes through the individual income tax form.
