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Marginal Tax Rate Calculator

Marginal Tax Rate Calculator

Knowing your income tax rate can help you calculate your tax liability for unexpected income, retirement planning or investment income. This calculator helps you estimate your average tax rate, your current tax bracket, and your marginal tax rate for the 2007 tax year.

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Recent tax legislation
The "Jobs and Growth Tax Relief Reconciliation Act" passed in 2003, and additional, related legislation in almost every year since, has included some significant, often temporary, and somewhat confusing changes. This is in addition to the already complex tax code changes passed by Congress in 2000. Below is a summary of the changes that impact most taxpayers in 2007.

  1. Child tax credit: The child tax credit has been increased from $600 to $1,000 through 2010. Starting in 2010, the tax credit returns to the level originally passed in the 2000 tax bill. The credit is, however, still phased out for higher incomes.

  2. Marriage penalty relief: The new law makes the standard deduction for married couples filing jointly and qualified widowers to be double that of single tax filers. This puts the standard deduction for 2007 at $10,700. In addition to the increased standard deduction, the 15% tax bracket has been increased for married tax filers to further reduce the impact of the marriage penalty.

  3. Lower tax rates: Below are the resulting tax rates and income ranges for 2007:
    Filing Status and Income Tax Rates 2007
    Tax rateMarried filing jointly
    or Qualified Widow(er)
    SingleHead of householdMarried filing separately
    10% $0 - 15,650 $0 - 7,825 $0 - $11,200 $0 - 7,825
    15% $15,651- 63,700 $7,826- 31,850 $11,201- 42,650 $7,826- 31,850
    25% $63,701- 128,500 $31,851- 77,100 $42,651- 110,100 $31,851- 64,250
    28% $128,501- 195,850 $77,101- 160,850 $110,101- 178,350 $64,251- 97,925
    33% $195,851- 349,700 $160,851- 349,700 $178,351- 349,700 $97,926- 174,850
    35% over $349,700 over $349,700 over $349,700 over $174,850
    Source: http://www.irs.gov/formspubs/article/0,,id=164272,00.html

  1. Reduced Taxes on Capital Gains: Capital gains tax rates remain at 5% and 15% respectively. These capital gains rates are for property that was held for at least one year. This calculator assumes that all of your long-term capital gains are taxed the new rates of 5% and 15%.

  2. Reduced Taxes on Dividends: The new law applies the capital gains tax rates to qualified dividends paid from most U.S. corporations and certain qualified foreign corporations. This calculator assumes that all dividends are qualified, however, you should make certain that this is the case in your particular circumstance. All qualified dividends will appear in column 1b of Form 1099-DIV, which should be sent to you in January of the year following the dividend payment. Taxpayers in the 10% or 15% bracket pay a 5% rate of tax on dividends paid between January 1, 2003, and December 31, 2007, and zero percent in 2008. Taxpayers in tax brackets above 15%, pay a 15% rate of tax on dividends paid between January 1, 2003, and December 31, 2008.

  3. IRA and retirement plan deductions: The new tax law did not change IRA deduction and contribution limits. However, the 2000 tax code increased the amount for most individuals to $4,000 for 2007. Those over 50 can contribute $5,000.

Wages, salaries, tips, etc.
This is your total income for the year. To keep things simple this calculator assumes this is your net income, after deductions for retirement contributions such as 401(k)s, IRAs, etc.

Filing status
Choose your filing status. Your filing status determines the income levels for your Federal tax bracket. It is also important for calculating your standard deduction, personal exemptions, and deduction phase out incomes. The table below summarizes the five possible filing status choices. It is important to understand that your marital status as of the last day of the year determines your filing status.

Filing Status for 2007

Married filing jointlyIf you are married, you are able to file a joint return with your spouse. If your spouse died during the tax year, you are still able to file a joint return for that year. You may also choose to file separately under the status "Married filing separately".
Qualified Widow(er)Generally, you qualify for this status if your spouse died during the previous tax year (not the current tax year) and you and your spouse filed a joint tax return in the year immediately prior to their death. You are also required to have at least one dependent child or step child whom which you are the primary provider.

If you are divorced, legally separated or unmarried as of the last day of the year you should use this status.
Head of householdThis is the status for unmarried individuals that pay for more than half of the cost to keep up a home. This home needs to be the main home for the income tax filer and at least one qualifying relative. You can also choose this status if you are married, but didn't live with your spouse at anytime during the last six months of the year. You also need to provide more than half of the cost to keep up your home and have at least one dependent child living with you.
Married filing separatelyIf you are married, you have the choice to file separate returns. The filing status for this option is "married filing separately".

Are you someone's dependent?
Choose 'no' if no one can claim you or your spouse as a dependent. Choose 'yes' if someone can claim you as a dependent. Choose 'both you and your spouse if you both are dependents. (You are a dependent if someone supports you and can claim a dependency exemption for you.)

Number of additional dependents
A dependent is someone you support and for whom you can claim a dependency exemption. In 2007, each dependent you claim entitles you to receive a $3,400 reduction in your taxable income (see exemptions below). In 2007, each dependent under the age of 17 also receives a tax credit of $1000. The credit is, however, phased out for at higher incomes.

Itemized deductions
This is the total of your itemized deductions that you can include on schedule A of your Federal income taxes. For most people this includes state income taxes paid for the year, interest on a mortgage and any charitable contributions. Other itemized deductions include certain investment expenses, medical expenses exceeding 7.5% of your adjusted gross income, and some moving expenses.

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