Part 1 of the Internal Revenue Code ( or simply IRC Part 1), titled "Tax on Individuals" is the part of the Internal Revenue Code that contains the sections imposing 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. The Part contains five sections, most significantly section 1, titled "Tax Imposed", which "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.CCH Tax Law Editors, Income Tax Regulations: Winter 2009 Edition (Six Volume Set), p. 21,001-21,002. The section historically contained tables from which the exact tax owed could be computed based on the marital status and filing options of the taxpayer. While these tables remain in the statute as examples, the actual amounts are provided by the Internal Revenue Service and regularly adjusted for cost of living changes. Section 1 also imposes an income tax on income earned by certain estates and trusts. A similar tax on corporations is set forth in IRC §11, but "the primary target for the income tax is the individual taxpayer", as set forth in section 1, and some businesses, such as sole proprietorships and single-member LLCs that do not elect to be taxed as a corporation are disregarded entities, so that if the owner of such an entity is an individual, then its activities will be reflected on the owner's tax return under section 1.

Although the tax imposed by section 1 applies to all taxpayers regardless of age, 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". Another highly controverted provision in the section, 1(h), provides the rules for taxation of capital gains. Other 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), 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).

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. Amendments have frequently focused on the number of tax brackets and the rate of taxation in each bracket, as well as attempts to address the aforementioned points of dispute. Other sections of this Part have been amended less frequently. Section 2 of this Part provides definitions for some of the terms used in section 1, particularly for the meanings of "head of household" and "surviving spouse" within the context of the IRC. Section 3 originally contained an optional tax structure for persons with an income of less than $5,000 per year, but was later changed by amendment to a tax table for lower income individuals, while section 4, originally containing additional rules for this optional tax structure, was repealed on October 4, 1976. Finally, section 5 contains "Cross references relating to tax on individuals" noting other sections of the tax code relevant to persons such as nonresident aliens, and members of the United States Armed Forces.

History

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, ), 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 governing taxation of individuals being moved into Part I of Subchapter A, consisting of sections 1 through 5. Provisions specifically imposing the income tax that were previously distributed in sections 11 and 12 of the 1939 code were consolidated into the new section 1.

The head of household filing status ultimately defined in section 2 was created in 1951 to acknowledge the additional financial burdens faced by single people caring for dependents. Consequently, it provides single parents and other people caring for qualifying dependents with a larger standard deduction and preferential tax rates compared to single filers, reducing their tax liabilities.

President Ronald Reagan made simplification of the tax code the central focus of his second term domestic agenda. 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. The bill was signed by Reagan on October 22. The top tax rate for individuals for tax year 1987 was lowered from 50% to 33%.Tax Rate Schedules, page 47, Instructions for 1987 Form 1040, Internal Revenue Service, U.S. Dep't of the Treasury. Many lower level tax brackets were consolidated, and the upper income level of the bottom rate (married filing jointly) was increased from $5,720/year to $29,750/year. This package ultimately consolidated tax brackets from fifteen levels of income to four levels of income. Another significant legislative change was made in 2003, when president George W. Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), which changed tax rates significantly, particularly with respect to tax rates for certain capital gains and qualified dividend income.

Provisions

Within the layout of the IRC, Part 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 2 Definitions and special rules Section 3 Tax tables for individuals Section 4 [Repealed] Section 5 Cross references relating to tax on individuals

Section 1 imposes the Federal income tax on the "taxable income" of individuals (mainly in subsections (a) through (d)), 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. This progressivity aims to reflect taxpayers’ differing ability to pay and to provide a degree of income redistribution through the tax code.

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)). 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. 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.

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.

Marriage penalty

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. In 1981, Congress tried to mitigate the marriage penalty through a deduction for two-earner married couples, but this was repealed in 1986. 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.

Although numerous efforts have been made to amend section 1 to reduce the effects of the marriage penalty, 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.Rosen, Harvey. 1977. "Is it time to abandon joint filing?", National Tax Journal 30 (December), 423-428.Lovell, Michael. 1982. "On taxing marriages", National Tax Journal 35 (December), 507-510. Partial income splitting models, like section 1 provides through its "married filing jointly" option, allow only a part of the income to be transferred among spouses in order to balance such criteria.

Dividend tax