Federal Tax Environment
Model your directional belief about future federal tax rates. A positive shift raises every marginal bracket rate by that number of percentage points starting in the year you choose; a negative shift lowers them. Applies to ordinary income, long-term capital gains, and AMT rates. Does not affect NIIT, FICA, or additional Medicare tax.
How it works
The Federal Tax Environment control adds (or subtracts) a fixed number of percentage points to every marginal bracket rate -- ordinary income, long-term capital gains, and AMT 26%/28% -- for each projection year on or after the configured start year. Bracket dollar thresholds are not changed; only the rates shift. The adjustment is additive, not multiplicative: a +3pp shift on a 22% bracket produces 25%, not 22.66%.
1. Configure the shift
In the Assumptions Panel under Federal Tax Environment, enter a percentage-point shift (positive to model higher future rates, negative to model lower rates) and optionally a start year. Leave the start year blank to use the automatic default.
Example: Future Rate Shift: +3.0% | Beginning in year: (blank uses automatic default)2. Determine the effective start year
When you leave the start year blank, the shift kicks in automatically starting in the first projection year beyond the most recently published IRS bracket data (currently 2025, so the shift begins in 2026 by default). If you enter an explicit start year, the shift begins exactly at that year -- even if it falls within a published bracket year.
Example: No start year set: shift applies to 2026 and all later projection years. Start year = 2030: shift applies from 2030 onward; 2026-2029 use unshifted published rates.3. Apply the shift to bracket rates
For each projection year where the shift is active, the engine adds the shift value to every rate in the ordinary income bracket schedule, the long-term capital gains bracket schedule, and the AMT 26%/28% rates. Bracket dollar thresholds (the income levels where each bracket begins) are not changed by this control. If inflation indexing is enabled, it continues to adjust those thresholds as usual. Rates are clamped to [0%, 100%].
Shifted rate = min(100%, max(0%, published rate + shift))
Example: MFJ 22% bracket with +3pp shift: 25%. 0% LTCG bracket with +3pp shift: 3%. AMT 26% rate with +3pp shift: 29%.4. Interaction with inflation indexing
The rate shift and inflation indexing operate independently. When both are active, bracket thresholds are first indexed for inflation (as they normally would be), and then the rates on those inflation-adjusted brackets are shifted. The shift is a flat additive value applied uniformly every year it is in scope -- it does not compound over time.
Example: Year 2030 MFJ 22% bracket: threshold inflated to roughly $115,000 (from 2025 base at 3% annual inflation), rate becomes 25% (22% + 3pp). Year 2031: threshold inflates further, rate remains 25%.5. What is not affected
The following rates are statutory flat charges outside the bracket schedule and are never changed by this control: Net Investment Income Tax (NIIT, 3.8%), FICA payroll taxes (Social Security 6.2%, Medicare 1.45%), and the additional Medicare tax on high earners (0.9%). State income tax is also unaffected. Standard deduction dollar amounts are not adjusted by this control.
Example: A +5pp shift does not change NIIT. A household with capital gains above the MAGI threshold still owes 3.8% NIIT on the excess regardless of the rate shift setting.
Real-world context
Why this control exists
Federal tax law changes regularly. Advisors often want to stress-test a plan against the possibility that rates will be higher (or lower) in future decades than they are today. This control lets you model that directional belief without committing to a specific legislative prediction. Enter the shift that reflects your assumption and let the projections show the impact on lifetime taxes.
How to calibrate your assumption
The chart icon next to the Federal Tax Environment heading opens the Historical Tax Rates modal. It shows effective and marginal federal tax rates from 1948 to the present for households at three income levels expressed in today's dollars. Use it as a calibration reference: it shows where current rates sit relative to the full post-World War II range, helping you decide whether your shift assumption is conservative or aggressive relative to historical experience.
Interaction with tax optimization strategies
Because a positive shift increases future rates, it directly affects the relative value of strategies that move income into earlier years. A Roth conversion today locks in current unshifted rates; a higher future rate shift makes that conversion appear more valuable in the projection. Conversely, strategies that defer income to later years may look less attractive when the shift is large. Both the Base case and Strategic case run with the same rate shift assumption, so the comparison is always apples-to-apples.
Negative shifts are also supported
A negative shift models a scenario where future federal rates are lower than today. Rates are clamped at 0%, so a shift cannot produce a negative tax rate. Modeling lower future rates may reduce the projected benefit of strategies that front-load income recognition.
What drives the result
Adds the specified percentage points to every marginal bracket rate (ordinary income, LTCG, AMT) for each projection year at or after the effective start year. At 0% (the default), no shift is applied and projections use published IRS rates extended forward via the most recently published bracket year.
+3.0% shift: a household in the MFJ 22% bracket pays 25% on income in that bracket for all shifted years. On a $50,000 taxable income slice in that bracket, this generates $1,500 more federal tax per year compared to no shift.
Sets the first projection year where the rate shift applies. Leave blank to use the automatic default (the first year beyond the most recent published IRS bracket data -- currently 2026). Enter a specific year to start the shift earlier or later. All years before the start year always use unshifted rates.
Blank: shift begins 2026. Entry of 2030: projection years 2026-2029 use unshifted rates; 2030 and later use the shifted rates.
Assumptions
- The shift is a flat additive amount applied uniformly to all bracket rates -- it does not vary by income level or bracket position
- Bracket dollar thresholds are not changed by this control
- Standard deduction dollar amounts are not changed by this control
- The shift does not compound -- a +3pp shift in 2026 produces the same +3pp in 2040
- Published IRS bracket years (currently 2024 and 2025) are treated as settled law and are never shifted when using the automatic start year
- When an explicit start year is set, the advisor's intent takes precedence -- the shift applies even if the start year falls within a published bracket year
Limitations
- Models a single uniform rate shift only -- cannot model a change that affects some brackets differently from others (e.g., raising only the top bracket while leaving lower brackets unchanged)
- Does not model changes to bracket structure (number of brackets or income thresholds where brackets begin)
- Does not affect NIIT, FICA, additional Medicare tax, or state income tax
- Standard deduction dollar amounts are not adjusted by this control
- The shift is a planning assumption, not a forecast of specific legislation -- it should reflect the advisor's directional belief
Related
This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.