Proposal for $0 Income Tax for Low-Income Individuals

Jeff Bezos has suggested that the roughly 50% of individuals with AGI of $54,000 or below pay no federal income tax (see Gabrielle Olya, "Jeff Bezos Wants $0 Federal Income Tax for Anyone Earning Under $54K - Would You Benefit?," MoneyLion, 5/22/26 (I'm quoted in this article)).

Senator Booker proposes the Keep Your Pay Act, to provide a $75,000 standard deduction for married couples filing jointly and proportionate relief for other filing statuses (3/9/26 press release).

I think these are good ideas for low-income taxpayers and for the economy, but need to consider how the law works today. These considerations include:

1. Low-income individuals today generally don't pay federal income taxes due to the standard deduction, Earned Income Tax Credit (EITC), and child credit. 

2. BUT if the low-income individuals are employees or self-employed, they pay 15.3% payroll taxes on earnings (considering their 7.65% and that they economically bear the employer's 7.65%), and 15.3% on net earnings if self-employed. The EITC provides some relief for these taxes, but not necessarily all of it.

Individuals with capital gain income generally pay 15%, making that rate look low or the payroll tax or self-employment tax rate for low-income individuals look high.

3. The federal and state governments deliver benefits to low-income workers through the tax law. So, these proposals should not leave low-income workers out of the system, but instead greatly increase their standard deduction and continue to use the income tax filing process to claim the EITC, child tax credit and other refundable credits.

4. The child tax credit is not fully refundable (only up to $1,700 rather than $2,200). Meanwhile, higher income individuals with a child under age 17 get the full $2,200 (this credit doesn't start to phase down until a high income level of $400,000 if MFJ).

5. Other credits should be made refundable, such as the child and dependent care credit. And, an income phaseout should be added to this so that individuals with income above, say $250,000 don't qualify for this credit of $600 or $1,200 depending on the number of children under age 13 getting care. Or, this subsidy should instead be directed to providing more free or low-cost child care centers for low-income workers.

6. To provide assistance throughout the year, the refundable and advancable and higher child tax credit that was in the American Rescue Plan Act of 2021 (P.L. 117-2) should be reinstated. The U.S. Census Bureau estimates that this caused a 46% decline in child poverty. What a tremendous benefit to these families and our economy.

What do you think?

19th Anniversary of the 21st Century Taxation Blog

Today is the 19th anniversary of starting this blog!  And I'm pleased to have it be #15 on this list of 100 Best Tax Blogs to Follow in 2026.

I'd like to focus this post on space taxation. I've been interested in space exploration since I was in grade school. I wrote an article on space taxation for the 50th Anniversary of the Apollo 11 moon landing, showing not only space tax issues but that a tax article can be written tied to just about any event.  You can see this article in Tax Notes State - here.

On May 20, the ABA Sections of Taxation and Science & Technology are co-sponsoring a free webinar on space taxation (registration link). I encourage you to check it out. There are a variety of tax issues at the federal and state issues such as where certain space activities are taxed, whether tax rules for US activities (such as the deduction and credit for domestic research) includes activity in space, dealing with negative externalities of space waste, and more.

With continuing and growing space activity, particularly by for-profit companies, tax issues and a need for guidance will continue. Let's explore some of this frontier of space taxation in future blogs.

What do you think?

Time to Increase the Annual Gift Exclusion Amount?

IRC Section 2503(b) provides an exclusion from gift tax of any gift (other than a gift of a future interest in property) for the first $10,000 given to someone by the giver (taxpayer). This amount is adjusted annually for inflation and for 2025 and 2026 is $19,000. So, if you give $15,000 to your grandchild in 2026, no gift tax is owed and no gift tax return (Form 709) needs to be filed (unless there were gifts above the exclusion amount or of a future interest).

The OBBBA increased the estate and gift exemption amount at section 2010 to $15 million, adjusted for inflation after 2026. This is a very large figure and less than a third of one percent of people will die with over $15 million of assets.

But, if you gift $20,000 to your adult child in 2026 to help them buy a house or car (and let's assume the giver is single for simplicity), a gift tax return must be filed for the $1,000 above the gift exclusion. This person owes no gift tax, but instead must file to report they used $1,000 of their $15 million estate/gift exemption.

For the roughly 99.8% of people who will never have over $15 million of assets, what is the point of filing a Form 709?  And, filing a Form 709 also means you have to report all of your charitable contributions (no effect on your $15 million exemption - just a requirement for Form 709 - see page 2 of instructions, right column). And this is all extra processing for the IRS with no tax effect for the bulk of the returns. Of course, there likely are many gift tax returns not filed either due to unawareness of the requirement or because the giver knows they are unlikely to ever owe estate or gift tax (but these are not justifiable reasons not to file).

Well, the estate/gift tax exemption increased significantly in recent years, but the gift exclusion did not. For example, in 2000, the estate exemption was $675,000 and the annual gift exclusion was $10,000. [see helpful summary from Tax Foundation]  So, simple math means that from 2000 to 2026, the estate exemption increased 2,122% while the gift exclusion increased a mere 90%.  That is quite a difference!

Of course, if the gift exclusion had also increased 21.22 times (to $210,220), this would be a tremendous estate planning option for people who do have over $15 million of assets. But, what about at least doubling the gift exclusion amount?  The Joint Committee on Taxation can likely come up with a justifiable increase that will reduce the number of Forms 709 filed where the filer will never have $15 million to give away during life or at death, but not create a significant estate reduction tool for the few individuals who will ever owe estate tax today.

Also, the IRS has data on how many people may ever owe estate tax. Their Personal Wealth Study, prepared every three years, uses Form 706 (estate tax return) data "to estimate the wealth of the living population." Using the most recent data of 2019, when the estate exemption was $11,400,000, only about 206,000 individuals were estimated to have gross assets worth more than this amount. The breakdown:

• 113,249 estimated to have wealth between $11.4 and $20 million
•   72,012 with wealth between $20 and $50 million
•   20,209 with wealth of $50 million or more

The U.S. Census Bureau also reports on wealth. For 2023, the median household wealth was $191,100. One in 10 households had wealth of zero, while one is 10 households had wealth greater than $1.8 million.

Too bad they can't break this down into smaller increments in the top 10% because the variation in this group is quite wide. 

And one more gift tax change that I noted in my 2/9/26 blog post on Trump Accounts is to modify Section 530A to include a provision similar to Section 529(c)(2)(A)(i) to treat contributions to a Trump Account as a gift of a present interest (even through gifts to 529 and Trump Accounts are future interests). This will avoid the need to file a gift tax return (the $19,000 gift exclusion only applies to gifts of present interests). Seems like an easy legislative fix. Or perhaps the IRS can simplify this filing by allowing the giver to report this gift on a line added to the Form 1040 starting in 2026 rather than filing a Form 709 (contributions to Trump Accounts cannot be made until July 4, 2026) and not file a gift tax return unless there were other gifts that warrant that.

What do you think?

Dept. of Labor FLSA Ruling and New Overtime Deduction

The OBBBA added IRC §225 allowing a deduction of up to $12,500 ($25,000 if MFJ) for qualified overtime compensation. This pay is defined as paid under the Fair Labor Standards Act (FLSA) in excess of "regular pay". Only the excess is overtime and generally overtime is paid when an eligible worker works over 40 hours per week.

Some of the examples offered by the IRS in FS-2026-01 and Notice 2025-69 focus on a regular hourly pay rate such as $20 per hour and the overtime rate as 1.5 times that amount or $30 per hour with $10/hour constituting overtime pay.

But as illustrated in Department of Labor Ruling FLSA 2026-02 (1/5/26), regular pay might be an hourly rate increased by nondiscretionary pay. In this ruling, workers were paid $12/hour and qualified for overtime pay if they worked over 40 hours per week. The workers could earn additional compensation under a Safety, Job Duties, and Performance bonus plan. Under the FLSA, this is not a discretionary plan because terms are set out in a predetermined plan, which makes this bonus pay part of regular pay.

In the fact pattern, workers received $9.50/hour of nondiscretionary bonus pay making their regular pay rate $21.50/hour and overtime pay at 1.5 times regular pay or $32.25/hour.

Thus, under IRC §225(c), the qualified overtime compensation is $10.75/hour ($32.25 less $21.50). 

Note that if the worker or employer incorrectly assumes that regular pay is $12/hour, they would treat $20.25/hour as overtime compensation generating a deduction which would be too high ($32.25 less $12.00).

In weeks where there is no nondiscretionary bonus paid, the overtime pay amount will be different. Thus, employers need good records to be able to properly prepare Form W-2 for 2026 through 2028.

For 2025, employers were not required to, but were encouraged to let workers know their amount of qualified overtime included in their wages. For 2026 through 2028, employers must separately state the qualified overtime on the Form W-2. Without information from their employer for 2025, will workers be able to determine the correct amount of overtime pay?

Notice 2025-69 does mention regular pay increased by a nondiscretionary bonus but no further details or example are provided (see page 24).

This is a good example of complexity that can arise in using a non-tax law to define a tax term, and when the measure of overtime pay can vary from pay period to pay period.

What do you think?

Time Running Out To Claim Refunds Owed for 2022 - WHY?

Every year in mid-March, the IRS issues a news release about time running out to claim refunds owed to people for four year earlier where the statute of limitations is going to close on April 15. The latest is IR-2026-37 (3/20/26) stating that time is running out to claim $1.2 billion in refunds for 2022. The IRS has details on this to not only reach this figure, but they also have a table showing the refunds owed by state. 

I have blogged on this a few times before including in 2023 suggesting that a modern system should prevent this situation. For example, why not change the law to allow the IRS to issue the refund?  Some of these refunds likely are for people with wage withholding who did not know they had to file to get their withheld federal income taxes refunded when their income is below the filing threshold.

Some people who have not filed are also missing out on claiming a greater refund such as for the Earned Income Tax Credit.

Please see my March 2023 post for a few ideas on how to not have these refunds not get to the taxpayers they are owed to.

What do you think?