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Federal Income Tax Rates

TaxesAs the close of the year draws near, many taxpayers are concerned about limiting their tax liability in 2007.  By understanding their incremental federal income tax rates, taxpayers can better understand the benefit received from a potential tax deduction.

2007 Income Tax Rate Schedules

Income tax rate tables or tax brackets are published each year by the federal government through the Internal Revenue Service or IRS. These tables outline for taxpayers the tax owed and incremental tax rates.  These tax schedules can also be used to estimate your potential tax liability in 2007.  However, more accurate estimates can be achieved by completing a Form 1040.

  Additional Resources

We are still seeing a shift in these tax rates due to President Bush's introduction of a tax reform agenda.  In fact, he is responsible for introducing the 10% tax rate back in 2001 - the lowest tax rate published.

Reading a Tax Rate Schedule

Reading a tax rate schedule is a pretty simple process.  First you need to figure out your total federal taxable income.  Again, IRS Form 1040 can help you figure out that value more accurately.  Once you know your taxable income, you need to know which tax rate table to use.  Basically, there are four schedules depending on your tax status - such as Single or Married Filing Jointly.  If you don't know your tax filing status, the instructions for Form 1040 can help you figure that out.

2007 Schedule X - Single

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $7,825 $0 + 10% $0
7,825 31,850 782.50 + 15% 7,825
31,850 77,100 4,386.25 + 25% 31,850
77,100 160,850 15,698.75 + 28% 77,100
160,850 349,700 39,148.75 + 33% 160,850
349,700  - 101,469.25 + 35% 349,700

2007 Schedule Y-1 - Married Filing Jointly or Qualifying Widow(er)

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $15,650 $0 + 10% $0
15,650 63,700 1,565.00 + 15% 15,650
63,700 128,500 8,772.50 + 25% 63,700
128,500 195,850 24,972.50 + 28% 128,500
195,850 349,700 43,830.50 + 33% 195,850
349,700  - 94,601.00 + 35% 349,700

2007 Schedule Y-2 - Married Filing Separately

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $7,825 $0 + 10% $0
7,825 31,850 782.50 + 15% 7,825
31,850 64,250 4,386.25 + 25% 31,850
64,250 97,925 12,486.25 + 28% 64,250
97,925 174,850 21,915.25 + 33% 97,925
174,850  - 47,300.50 + 35% 174,850

2007 Schedule Z - Head of Household

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $11,200 $0 + 10% $0
11,200 42,650 1,120.00 + 15% 11,200
42,650 110,100 5,837.50 + 25% 42,650
110,100 178,350 22,700.00 + 28% 110,100
178,350 349,700 41,810.00 + 33% 178,350
349,700  - 98,355.50 + 35% 349,700

Tax Rate Example Calculation

Now that you've seen the tax rate tables, let's run through a quick example to help you figure out your incremental tax bracket in 2007.  In this example, let's say that your filing status is Married Filing Jointly.  That means you'll be using Schedule Y-1 above.  If your federally taxable income in 2007 is $100,000, then the tax owed is calculated as follows:

You're going to use the third row of the Y-1 tax rate schedule because your income falls between $63,700 and $128,500.  That puts you in the 25% tax bracket.  Calculating your tax liability from that table:

$8,772.50 + 25% x ($100,000 - $63,700)
$8,772.50 + 0.25 x $33,300
$8,772.50 + $9,075 = $17,847.50

Marginal Tax Rates

If you understand how to read these tax rates, then you'll also understand why they are also referred to as marginal tax rates.  That's because within each rate schedule you can find your incremental tax rate, or marginal rate of tax, which is taxed at the rate shown (25% in this example).

One of the more common misconceptions is that if you earn more money all of the income is taxed at the higher rate - the above tables demonstrate that this is simply not true.  You are taxed at an incremental rate on marginal income.  That means you're taking home less pay for each hour worked, but you are certainly bringing home more money.


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