Tax bill caps burdens on lower earners, adds surcharge above $1 million

What does this do?

HR 7937 does two things starting with the 2026 tax year. First, it limits total federal income tax to 25.5% of income above a baseline cost-of-living amount, set at roughly $80,500 for a single person, for those earning below about 175% of that baseline. Second, it creates a new surcharge on high earners, ranging from an extra 5% on income between $1 million and $2 million up to an extra 12% on income above $5 million. Both the baseline and the surcharge thresholds adjust annually for inflation.

Who does it affect?

Lower- and middle-income taxpayers earning below approximately 175% of the cost-of-living baseline are directly affected by the tax cap, while single filers earning more than $1 million and married couples filing jointly above comparable thresholds face the new surcharge. People earning between those two groups are generally not directly affected by either provision.

Why does it matter?

Lower- and middle-income filers could see a reduction or ceiling placed on the federal income tax they owe. Single filers earning above $1 million would owe more in federal taxes than they do under current law, with the additional burden increasing at $2 million and again above $5 million.

What does it cost, and who pays?

• Cap at 25.5% of income above ~$80,500 baseline
• 5%–12% surcharge on income over $1 million
• Higher earner thresholds for joint filers