How-to Guides

The most favorable tax brackets apply to married persons filing jointly and qualifying widow(er)s who also use the joint return rates. The least favorable brackets are those for married persons filing separately, but filing separately is still advisable for married couples in certain situations. The table in Topic 4 compares 2007 tax rate brackets.

If you have children and are unmarried at the end of the year, do not assume that your filing status is single. If your child lives with you in a home you maintain, you generally may file as a head of household, which allows you to use more favorable tax rates than a single person. If you were widowed in either of the two prior years and maintain a household for your dependent child, you generally may file as a qualified widow(er), which allows you to use favorable joint return rates.

If you are married at the end of the year but for the second half of the year you lived with your child apart from your spouse, and you and your spouse agree not to file jointly, you may use head of household tax rates, which are more favorable than those for married persons filing separately.
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Your top marginal tax rate is 10%, 15%, 25%, 28%, 33%, or 35%, depending on your taxable income, as shown in the table below. If your top bracket is 25%, for example, this means that each additional dollar of ordinary income (such as salary or interest income) will be taxed at 25% for regular income tax purposes.

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Please note: The tax rate on qualified dividends and net capital gains is generally lower than your top bracket rate on ordinary income. Qualified dividends are subject to a rate of 5% or 15%, depending on your top bracket, and net capital gains are also generally subject to a rate of 5% or 15% (depending on your top bracket), but the rate can be higher if you have 28% rate gains or unrecaptured Section 1250 gains.

To actually compute your 2007 regular income tax, you will either look up your tax in the Tax Table, use the Tax Computation Worksheet, or, if you have net capital gains or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet or Schedule D Tax Worksheet.
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The so-called marriage penalty is faced by couples whose joint return tax liability exceeds the combined tax they would pay if single. This is generally the case where each spouse earns a substantial share of the total income. On the other hand, if one spouse has little or no income, there is usually a marriage bonus or singles penalty, as the couple's tax on a joint return is less than the sum of the tax liabilities that would be owed if they were single.

Tax legislation has reduced the marriage penalty by increasing the standard deduction for married couples filing jointly to double the amount allowed to a single person and making the 15% bracket twice as wide.
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