Weird Tax Fact of the Day: The fiscal cliff deal (aka the American Taxpayer Relief Act of 2012) created what may be the world’s tiniest tax bracket. Under the new law, singles face a rate of 35 percent if their taxable income falls between $398,350 and $400,000. The bracket covers a grand total of $1,650.
The Tax Policy Center figures fewer than 500 taxpayers fall into this group, which makes it a very exclusive club indeed.
Given the amount of money these folks make, it does create some interesting social opportunities. Perhaps all of the singles in the 35 percent bracket could be invited to a nice dinner for the upcoming inauguration. They’d easily fit in a hotel ballroom.
Or a cruise might be in order. Of course, it does seem a little odd to create a tax bracket solely for a group of people who could fit onto the love boat (with plenty of room left over for a few of the hoi polloi).
Matters are a little less strange for married couples filing jointly. For them, the 35 percent bracket covers a $51,650 income range. This is still fairly silly but at least approaches respectability.
But for singles, a bracket this small is downright bizarre. For context, the 28 percent bracket covers $95,400 in taxable income. The 33 percent bracket covers a range of about $215,000. But $1,650? Seriously?
Not since 1976, when we had 25 rates, were brackets this narrow. I know no one who laments those days.
I can’t think of many consequences to this bit of absurdist tax law. It won’t really make filing any harder. After all, most people making this kind of dough turn their returns over to accountants anyway. If not, they surely use tax software which will happily spit out what we all hope is the correct number.
How much money is at stake? Well, if Congress had simply started the 39.6 percent rate at $398,350 instead of $400,000, those at the very top of the bracket would owe an extra $75.90. So would the 89,000 singles who make more than $400,000. I think they’d all manage—and the revenue code would look just a bit less ridiculous.