The

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

Revenue Act of 1978, , amended the

Internal Revenue Code The Internal Revenue Code of 1986 (IRC), is the domestic portion of federal statutory tax law in the United States. It is codified in statute as Title 26 of the United States Code. The IRC is organized topically into subtitles and sections, co ...

by reducing individual

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

es (widening tax brackets and reducing the number of tax rates), increasing the personal exemption from $750 to $1,000, reducing

corporate tax A corporate tax, also called corporation tax or company tax or corporate income tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but ...

rates (the top rate falling from 48 percent to 46 percent), increasing the standard deduction from $3,200 to $3,400 (joint returns), increasing the capital gains exclusion from 50 percent to 60 percent (effectively reducing the rate of taxation on realized capital gains to 28%), and repealing the non-business exemption for state and local

gasoline Gasoline ( North American English) or petrol ( Commonwealth English) is a petrochemical product characterized as a transparent, yellowish, and flammable liquid normally used as a fuel for spark-ignited internal combustion engines. When for ...

taxes.

Legislative history

The Act was passed by the 95th Congress and was signed into law by President

Jimmy Carter James Earl Carter Jr. (October 1, 1924December 29, 2024) was an American politician and humanitarian who served as the 39th president of the United States from 1977 to 1981. A member of the Democratic Party (United States), Democratic Party ...

on November 6, 1978.

Provisions

Flexible spending accounts and the 401(k) section of the IRS code

The Act also established Flexible spending accounts, which allow employees to receive reimbursement for medical expenses from untaxed income dollars. The Act added section

401(k) In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodic employee contributions come directly out of their ...

to the Internal Revenue Code.See section 135(a) of the Revenue Act of 1978, Pub. L. No. 95-600, 92 Stat. 2763, 2785 (Nov. 6, 1978), redesignating former subsection (k) as subsection (l) and adding new subsection (k), effective for plan years beginning after December 31, 1979. This latter provision, intended to limit executive compensation, was later used to develop one of the primary tax-advantaged retirement savings vehicles in use in the United States.

Notes

External links

Full text of the Act
{{US_tax_acts United States federal taxation legislation 1978 in American law