President Joe Biden wants to raise the top income tax rate for wealthy households to 39.6%, from the current 37%, to help finance his legislative agenda.
That top rate would apply to single individuals with taxable income of more than $452,700 and married couples filing a joint tax return with income over $509,300, according to a budget proposal issued Friday by the Treasury Department.
More from Personal Finance:
Biden budget reiterates 43.4% top capital gains tax rate for millionaires
Cryptocurrency poses a significant risk of tax evasion
Divorcees are using cryptocurrency to hide money
It would also apply to heads of household with income exceeding $481,000 and married individuals filing separate tax returns with income over $254,650.
Those income thresholds are lower than under current law, set by the 2017 Tax Cuts and Jobs Act.
(By comparison, the 37% top individual rate applies to income exceeding: $523,600 for single filers and heads of household, $628,300 for married joint filers, and $314,150 for married separate filers.)
The 39.6% top rate would kick in during the 2022 tax year, according to the proposal. (That means it would apply to tax returns filed in 2023.) Congress would still need to pass legislation enacting the policy, which isn't assured.
Biden's proposal is one of several measures aimed at raising taxes on households earning more than $400,000 a year.
The tax revenue would help finance initiatives in the American Families Plan to expand the social safety net, including funding for four additional years of free schooling, heavily subsidized child care for middle-class families, federal paid family leave and expanded child tax credits.
Hiking the top rate to 39.6% would raise an estimated $132 billion over five years, according to the Treasury Department.
The top rate is slated to increase even if Congress doesn't pass Biden's proposal. The Tax Cuts and Jobs Act's individual tax reductions will lapse after 2025 due to how Congress structured the law.
Biden's proposed income thresholds for the 39.6% rate correspond to the pre-TCJA thresholds, indexed for inflation, according to a Treasury official.