2007 federal tax brackets

Federal tax rate for taxable income of Single & Married File Jointly (MFJ)

(Not shown are Head of Household and Married File Separately )

Marginal Rate	Single	MFJ
10%	$0 - $7,825	$0 - $15,650
15%	$7,826 - $31,850	$15,651 - $63,700
25%	$31,851 - $77,100	$63,701 - $128,500
28%	$77,101 - $160,850	$128,501 - $195,850
33%	$160,851 - $349,700	$195,851 - $349,700
35%	Over $349,700	Over $349,700

2007 federal exemption & deductions

Personal exemption
$3,400

Personal exemption phase-outs
$234,600 - $357,100 Joint return
$195,500 - $318,000 Head of household
$156,400 - $278,900 Single
$117,300 - $178,550 Married couple filing separately

Standard Deductions

$10,700 Married filling jointly or qualifying widow(er)
$7,850 Heads of households
$5,350 Singles
$5,350 Married filling separately

2007 earned income tax credit

Earned Income Credit (EITC)

The most credit you can get is:

$2,853 if you have one qualifying child,

$4,716 if you have more than one qualifying child, or

$428 if you do not have a qualifying child.

The maximum amount of income you can earn and still get credit of $1 to $4 is:

$37,783 ($39,783 if married filing jointly) if you have more than one qualifying child,

$33,241 ($35,241 if married filing jointly) if you have one qualifying child, or

$12,590 ($14,590 if married filing jointly) if you do not have a qualifying child.

The maximum amount of investment income you can have and still get the credit is $2,900.

Tax changes in retirement plans for tax year 2007

Catch-Up Contributions if Employer Bankrupt

For 2007, if you participated in a 401(k) plan and the employer who maintained the plan filed for bankruptcy, you may be able to contribute an additional $3,000 to your IRA. For this to apply the following conditions must be met.
*You must have been a participant in a 401(k) plan under which the employer matched at least 50% of your contributions to the plan with stock of the company.
*You must have been a participant in the 401(k) plan 6 months before the employer filed for bankruptcy.
*The employer (or a controlling corporation) must have been a debtor in a bankruptcy case in an earlier year.
*The employer (or any other person) must have been subject to indictment or conviction based on business transactions related to the bankruptcy.

If you choose to make these additional contributions, you cannot use the higher contribution and deduction limits for individuals who are age 50 or older.

Income Exclusion for Retired Public Safety Officer

For distributions in tax years beginning after 2006, you can elect to exclude from income an eligible retirement plan distribution if you are a retired public safety officer. The distribution must be from a governmental plan and must be transferred directly to pay premiums for accident or health insurance or qualified long-term care insurance for you, your spouse, or your dependents.

The maximum annual exclusion is $3,000.

You cannot deduct these premiums as medical expenses or, if you are self-employed, health insurance costs.

Modified AGI Limit for Traditional IRA Contributions Increased

For 2007, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:
*More than $83,000 but less than $103,000 for MFJ or a qualifying widow(er),
*More than $52,000 but less than $62,000 for a single or HH, or
*Less than $10,000 for MFS.

If you either live with your spouse at any time during 2007 or file a joint return for 2007; and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $156,000 but less than $166,000.

Rollovers by Nonspouse Beneficiary

After 2006, you may be able to roll over tax free all or a portion of a distribution you receive from an eligible retirement plan of a deceased employee. You must be the designated beneficiary of the employee, but you cannot be the surviving spouse. The distribution must be a direct trustee-to-trustee transfer to your IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA.

Modified AGI Limit for Retirement Savings Contribution Credit Increased

For 2007, you may be able to claim the retirement savings contribution credit if your modified adjusted gross income is not more than:
$52,000 if your filing status is MFJ,
$39,000 if your filing status is HH, or
$26,000 if your filing status is single, MFJ, or qualifying widow(er).

Rollover of Nontaxable Amounts

For tax years beginning after 2006, the nontaxable part of an eligible rollover distribution (such as after-tax contributions) from a qualified retirement plan can be rolled over to another qualified retirement plan or to an annuity contract described in section 403(b). Previously, this part of the distribution could be rolled over only to another qualified retirement plan that was a defined contribution plan.

The rollover must be a direct trustee-to-trustee transfer.

The plan to which the rollover is made must separately account for these contributions and the earnings on them.

Modified AGI Limit for Roth IRA Contribution Increased

For 2007, your Roth IRA contribution limit is reduced (phased out) in the following situations.
Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $156,000. You cannot make a Roth IRA contribution if your modified AGI is $166,000 or more.

Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution is your modified AGI is $10,000 or more.

Your filing situation is different than either of those described above and your modified AGI is at least $99,000. You cannot make a Roth IRA contribution is your modified AGI is $114,000 or more.

Qualified Plans

The following changes apply to qualified plans.

Limits on contributions and benefits. For 2007, the maximum annual benefit for a participant under a defined benefit plan has increased to the smaller of: $180,000, or 100% of the participant's average compensation for his or her highest 3 consecutive calendar years.

For 2007, a defined contribution plan's maximum annual contributions and other additions (excluding earnings) to the account of a participant has increased to the smaller of:
$45,000, or 100% of the compensation actually paid to the participant.

Compensation limit. For 2007, the maximum compensation used for figuring contributions and benefits has increased to $225,000.

Elective deferrals (401(k) plans). For 2007, the limit on elective deferrals (excluding catch-up contributions) for participants in 401(k) plans and SARSEPs (excluding SIMPLE plans) is $15,500.

Simplified Employee Pensions (SEPs)

The following changes apply to SEPs.

Elective deferrals (SARSEPs) limit. The limits on elective deferrals for participants in SARSEPs are discussed earlier under Elective deferrals (401(k) plans).

Deduction limit increased. The maximum deduction for contributions to a SEP remains unchanged at 25% of the compensation paid or accrued during the year to your eligible employees participating in the plan. However, for 2007, the maximum combined deduction for a participant's elective deferrals and other SEP contributions has increased to $45,000.

Contribution limit increased. For 2007, the annual limit on the amount of employer contributions to a SEP has increased to the smaller of: $45,000, or 25% of an eligible employee's compensation.

Compensation limit. For 2007, the maximum amount of an employee's compensation you can consider when figuring SEP contributions (including elective deferrals) and the deduction for contributions has increased to $225,000.

SIMPLE Plans

The following change applies to SIMPLE plans.

Salary reduction contributions. For 2007, the limit on salary reduction contributions (excluding catch-up contributions) to a SIMPLE plan is $10,500.

403(b) Plans

The following changes apply to 403(b) plans.

Increase in the limit on elective deferrals. For 2007, the limit on elective deferrals (excluding catch-up contributions) has increased to $15,500.

Limit on annual additions. For 2007, the limit on annual additions has increased to $45,000.

Tax changes for individuals in tax year 2007

Alternative Minimum Tax (AMT)

The following changes to the AMT went into effect for 2007.

AMT exemption amount decreased. The AMT exemption amount has decreased to
$33,750 if single
$45,000 if married filing jointly or qualifying widow(er)
$22,500 if married filing separately.

Exemption amount for a child. The minimum exemption amount for a child under age 18 has increased to $6,300.

Hurricane Katrina additional exemption expired. The additional exemption for taxpayers who provide housing for a person displaced by Hurricane Katrina has expired. Therefore, the additional exemption amount (formerly line 6 of Form 8914) is no longer allowable for the AMT.
Certain credits no longer allowed against the AMT. The following credits:
*The credit for child and dependent care expenses,
*credit for the elderly or the disabled,
*education credits,
*residential energy credits,
*mortgage interest credit, and
*the District of Columbia first-time homebuyer credit
are no longer allowed against the AMT, and a new tax liability limit applies. This limit is your regular tax minus any tentative minimum tax (figured without any AMT foreign tax credit).

Standard Mileage Rate

Business-related mileage. For 2007, the standard mileage rate for the cost of operating your car for business use is 48.5 cents per mile.

Medical- and move-related mileage. For 2007, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 20 cents per mile.

Charitable-related mileage. For 2007, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile.

Earned Income Credit (EITC)

The following paragraphs explain the changes to the credit for 2007.

Amount of credit increased. The maximum amount of the credit has increased. The most you can get is:
$2,853 if you have one qualifying child,
$4,716 if you have more than one qualifying child, or
$428 if you do not have a qualifying child.

Earned income amount increased. The maximum amount of income you can earn and still get the credit has increased for 2007. You may be able to take the credit of $1 to $4 if:
You have two qualifying children and you earn less than $37,783 ($39,783 if MFJ),
You have one and you earn less than $33,241 ($35,241 if MFJ), or
You do not have a qualifying child and you earn less than $12,590 ($14,590 if MFJ).

The maximum amount of adjusted gross income (AGI) you can have and still get the credit also has increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.

Investment income amount increased. The maximum amount of investment income you can have and still get the credit has increased to $2,900 for 2007.

Advance payment of the credit. If you get advance payments of the credit from your employer with your pay, the total advance payments you get during 2007 can be as much as $1,712.

Nontaxable combat pay election extended. You can elect to have your nontaxable combat pay included in earned income when you figure your earned income credit for 2007.

Standard Deduction Amount Increased

The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2007 than it was for 2006.

Exemption Amount Increased

The amount you can deduct for each exemption has increased to $3,400 in 2007.

You lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. For 2007, the phaseout begins at:
$117,300 for married persons filing separately,
$156,400 for single individuals,
$195,500 for heads of household, and
$234,600 for MFJ or qualifying widow(er)s.

Charitable Contributions

New recordkeeping requirements for cash contributions. You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution.

Contributions to donor advised funds. You cannot deduct a contribution to a donor advised fund after February 13, 2007, if the sponsoring organization is a war veterans' organization, a fraternal society, or a nonprofit cemetery company. There are also other circumstances in which you cannot deduct your contribution to a donor advised fund.

Filing fee for easements on buildings in historic districts. A new $500 filing fee must be paid for each qualified conservation contribution after February 12, 2007, that is an easement on a building in a registered historic district, if the claimed deduction is more than $10,000.

Social Security and Medicare Taxes

The maximum amount of wages subject to the social security tax for 2007 is $97,500. There is no limit on the amount of wages subject to the Medicare tax.

Income Limits Increased for Student Loan Interest Deduction

For 2007, the amount of the student loan interest deduction is phased out if your MAGI is between $55,000 and $70,000 (between $110,000 and $140,000 if MFJ).

Income Limits Increased for Hope and Lifetime Learning Credits

For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your MAGI is between $47,000 and $57,000 ($94,000 and $114,000 if you file MFJ).

Earned Income Amount for Additional Child Tax Credit

For 2007, the minimum earned income amount used to figure the additional child tax credit has increased to $11,750.

Mortgage Insurance Premium Deduction

Premiums that you pay or accrue for “qualified mortgage insurance” during 2007 in connection with home acquisition debt on your qualified home are deductible as an itemized deduction. The amount you can deduct is reduced by 10% (.10) for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000($50,000 if your filing status is married filing separately).

Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, or accrued after December 31, 2007, or that are properly allocable to any period after December 31, 2007, are not deductible as an itemized deduction.

Qualified mortgage insurance. Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance.

Limit on Itemized Deductions Increased

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2007, this amount is increased to $156,400 ($78,200 if MFS).

Health Savings Accounts (HSAs)

High deductible health plan (HDHP). For HSA purposes, the minimum annual deductible of an HDHP increases to $1,100 ($2,200 for family coverage) and the maximum annual deductible and other out-of-pocket expenses limit increases to $5,500 ($11,000 for family coverage).

Deductible limitation on contributions. The annual deductible limitation for contributions to your HSA based on the amount of your health insurance deductible is repealed. For 2007, the maximum HSA deduction increases to $2,850 ($5,650 for family coverage) regardless of the amount of your health insurance deductible. The maximum additional deduction for individuals age 55 or older increases to $800.

Transfers from an individual retirement account (IRA) to an HSA. You can elect to make a one-time direct trustee-to-trustee transfer from your IRA (other than a Simple IRA or a SEP IRA) to your HSA. The maximum amount you can transfer is the maximum HSA contribution limitation for the year. The amount transferred is not included in your income, is not deductible, and reduces your HSA contribution limitation for the year.

Adoption Benefits Increased

For 2007, the maximum adoption credit has increased to $11,390. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,390.

These amounts are phased out if your MAGI is between $170,820 and $210,820.

Income Limits Increased for Reduction of Education Savings Bond Exclusion

For 2007, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is MFJ or qualifying widow(er) and your MAGI is between $98,400 and $128,400.

For all other filing statuses, your interest exclusion is phased out if your MAGI is between $65,600 and $80,600.

Credit for Prior Year Minimum Tax

If you have any unused minimum tax credit carry forward from 2003 or earlier years, your minimum tax credit allowable for 2007 is not less than the “AMT refundable credit amount.” In addition, a portion of the credit may be refundable in 2007.

Increase in Deductible Limit for Long-Term Care Premiums

For 2007, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).
*Age 40 or under - $290.
*Age 41 to 50 - $550.
*Age 51 to 60 - $1,110.
*Age 61 to 70 - $2,950.
*Age 71 or over - $3,680.
Note. The limit is for each person.

Increase in Limit on Long-Term Care and Accelerated Death Benefits Exclusion

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increases for 2007 to $260 per day.

The limit applies to the total of these payments and any accelerated death benefits made
on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Archer MSA Limits Increased

For Archer MSA purposes for 2007, the minimum annual deductible of a high deductible health plan increases to $1,900 ($3,750 for family coverage).

The maximum annual deductible of a high deductible health plan increases to $2,850 ($5,650 for family coverage).

The maximum out-of-pocket expenses limit increases to $3,750 ($6,900 for family coverage).

Capital Asset Treatment for Self-Created Musical Works

Musical compositions and copyrights in musical works are generally not capital assets. However, you can elect to treat these types of property as capital assets if you sell or exchange them in tax years beginning after May 17, 2006, and:
Your personal efforts created the property, or
You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced.

Whistleblower Fees

If you receive an award from the IRS for information provided after December 19, 2006, that substantially contributes to the detection of violations of tax laws by the IRS, you may be able to deduct attorney fees and court costs paid by you in connection with the award, up to the amount of the award includible in your gross income on account of the award, as an adjustment to income.

Frivolous Tax Submissions

For returns filed after March 15, 2007, the penalty for filing a frivolous tax return is increased to $5,000. The $5,000 penalty also applies to other specified frivolous submissions made and issues raised after March 15, 2007.

Notice 2007-30, which will be published in Internal Revenue Bulletin 2007-14, contains a list of frivolous positions that will trigger the increased penalty amount. The penalty is in addition to any other penalty provided by law.

Expired Tax Benefits

Relief granted for Hurricanes Katrina, Rita, and Wilma. The following tax benefits have expired and will not apply for 2007.
*Tax-favored treatment of qualified hurricane distributions from eligible retirement plans.
*Increased limits and delayed repayment on loans from qualified employer plans.
*Special rules so a temporary relocation did not affect whether you provided more than half of an individual's support, whether you furnished more than half the cost of keeping up a household, and whether you could treat an individual as a student.
*Increased limits and an expanded definition of qualified education expenses for the Hope and lifetime learning credits.
*Additional exemption for housing individuals displaced by Hurricane Katrina.
*Exclusion from income for discharge of nonbusiness debt by reason of Hurricane Katrina.

Qualified electric vehicle credit. You cannot claim this credit for any vehicle you placed in service after 2006.

2008 General Tax Calendar

Federal holidays in 2008

January 1 — New Year’s Day
January 21 — Birthday of Martin Luther King, Jr.
February 18 — Washington’s Birthday
April 16 — District of Columbia Emancipation Day
May 26 — Memorial Day
July 4 — Independence Day
September 1 — Labor Day
October 13 — Columbus Day
November 11 — Veterans’ Day
November 27 — Thanksgiving Day
December 25 — Christmas Day

General tax calendar of 2008

January 14 — IRS starts to process 2007 income tax returns that are filed without any of following five forms

Form 8863, Education Credits
Form 5695, Residential Energy Credits
Form 1040A’s Schedule 2, Child & Dependent Care Expenses for Form 1040A filers
Form 8396, Mortgage Interest Credit
Form 8859, District of Columbia First-Time Homebuyer Credit

February 11 — IRS starts to process income tax returns that has filed with any of above five forms.

April 15 — Due date for 2007 income tax return and any tax owed.

OR file Form 4868 "Automatic Extension of Time to File Your Tax Return" and pay any tax due.

October 15 — File the income tax return if you had filed the Form 4868 by April 15.