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

This section establishes a new alternative maximum income tax under new IRC §1A for qualified individuals (i.e., those with modified adjusted gross income below 175% of the cost-of-living exemption) for taxable years beginning after December 31, 2025. Under the alternative tax, the regular income tax imposed by IRC §1 is capped at 25.5% of modified adjusted gross income exceeding the cost-of-living exemption, which equals 100% of the annualized cost-of-living wage ($46,000 base amount, adjusted annually by the CPI-U ratio from the year preceding enactment) for single filers, 200% for joint returns, and 140% for heads of household (excluding individuals described in IRC §63(c)(6), generally certain nonresident aliens). Modified adjusted gross income equals adjusted gross income increased by foreign earned income exclusions (IRC §§911, 931, 933) and nontaxable social security benefits. (Thus, the provision limits tax liability to 25.5% of income above a filing-status-adjusted cost-of-living threshold for eligible taxpayers.)

This section establishes a new income tax surcharge under new IRC §59B on non-corporate taxpayers equal to (1) 5% of modified adjusted gross income (MAGI) exceeding $1 million but not $2 million, (2) 10% of MAGI exceeding $2 million but not $5 million, and (3) 12% of MAGI exceeding $5 million. For joint returns, each threshold is increased by 50%; thresholds are adjusted for inflation after 2025 using the Consumer Price Index for all urban consumers (CPI-U) for September of the prior calendar year; MAGI equals adjusted gross income reduced by the investment interest deduction (with special rules for estates and trusts); citizens or residents living abroad receive a threshold reduction for foreign earned income exclusions (net of related disallowances); the surcharge does not apply to trusts devoted exclusively to charitable purposes under IRC §170(c)(2)(B); and the surcharge is disregarded for credits under chapter 1 or alternative minimum tax purposes. The provision applies to taxable years beginning after December 31, 2025, and is not treated as a rate change under IRC §15.