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Federal Tax Table

The federal tax table was created to simplify the computation of taxes.

Filing status will determine tax liability. [©Jupiter Images, 2009]
©Jupiter Images, 2009
Filing status will determine tax liability.

Federal Tax Table

The Internal Revenue Service (IRS) has developed a federal tax table for each type of taxpayer to facilitate the computation of federal tax liabilities. The use of federal tax tables to compute tax liability began in 1941 for low-income taxpayers, and was later expanded to include higher income brackets. The tax tables alleviate the need to determine the tax applicable to each layer of income and for every filing status. The current tables must be used to compute taxable income up to $100,000, whereas tax schedules are used when income exceeds $100,000. The tax tables are normally adjusted every year to eliminate the inflationary part of wage increases so that taxes are not being assessed within each income layer on the annual costs of inflation. The federal tax tables can be found in IRS Publication 17 and in the instructions for the various individual income tax returns.

Filing Status Categories

Filing status is normally determined at the end of the year, and determines eligibility to claim various deductions and tax credits. A taxpayer's filing status falls into one of the following categories:

  • Single
  • Married filing jointly
  • Married filing separately
  • Head of household
  • Qualifying widow or widower with dependent child (uses the married filing jointly category)

There are three or four tax rates applicable to each of the various filing categories for incomes up to $100,000. When more than one filing status applies to a taxpayer's situation, the status that results in the lowest tax should be chosen. According to the 2008 Tax Table, the tax liability for each of the filing statuses is the same until taxable income exceeds $8,050. After that point, the tax rates may vary, resulting in different tax liabilities.

Determining Marital Status

State law usually determines whether a person is married or legally separated under a divorce or separate maintenance decree on the last day of the year. Annulled marriages are considered never to have existed for tax purposes and the unmarried individuals would file as single taxpayers, or as head of household (if qualified), even if a return was previously filed as married filing jointly. When common law marriage is recognized by a state, the individuals are considered to be married for the entire year.

Legally married couples can choose to file their tax return as married filing jointly or as married filing separately. The married filing separately tax table for 2008 was the same as that for the single filing status up to taxable income of $65,750, when a higher 28 percent rate applies to taxable income over that amount for married filing separately filers. The rate for single filers does not increase to 28 percent (from 25 percent) until taxable income exceeds $78,850.

Joint Return and Married Filing Separately Tables

The decision to file separate returns must be made before filing a joint return because once a joint return is filed, an amended return cannot be filed changing the status from joint to separate (although separate returns can be changed to joint returns). The tax for married filing jointly is essentially the same as married filing separately. For example, a married couple filing jointly with taxable income of $80,000 owed $12,694 in taxes in 2008. In comparison, the tax for two separately-filed tax returns, each with taxable income of $40,000 was $6,350 each, or $12,700 in total tax. Therefore, the reason a couple would choose to file separately is based on tax savings from deductions.

One tax-saving reason for filing separate returns would be if one spouse had medical expenses beyond the 7.5 percent limitation factor. For example, if one spouse had $7,500 in unreimbursed medical expenses and a joint return were filed with $100,000 of adjusted gross income (AGI), the 7.5 percent of AGI factor would be $7,500 and eliminate any net medical deduction. However, if the spouse with the medical expenses had AGI of $50,000, and $40,000 taxable income before taking into account a medical expense deduction, the 7.5 percent of $50,000 would be a $3,750 non-deductible limitation and would result in a $3,750 net medical expense deduction for that spouse reducing taxable income from $40,000 to $36,250. The 2008 tax table for married filing separately showed a tax of $5,413 on $36,250 taxable income, plus the tax of $6,350 on $40,000 taxable income for the other spouse, resulting in a total tax of $11,763. That was a tax savings of nearly $1,000 compared to a tax of $12,694 on $80,000 taxable income, if a joint return had been filed.

Head of Household Tax Table

If a taxpayer qualifies as a head of household, the applicable tax rates are normally lower than those for single or married filing separately and a higher standard deduction will also apply if the taxpayer cannot itemize deductions. For 2008, the head of household tax on $40,000 taxable income was $5,431, as compared to $6,350 for a single person or married filing separately. Head of household tax rates do not increase to 25 percent from 15 percent until taxable income reaches $43,650. In contrast, the tax rate for a single person or married filing separately rises to 25 percent once taxable income is over $32,550.

A spouse is considered unmarried at the end of the taxable year when he or she has paid over half of the costs of keeping up a home and the other spouse has not lived in the household during the last six months of the year. In order to be considered a head of household for tax purposes, a qualifying child or relative must have lived in the home with the taxpayer for over half the year, except for absences to attend school. If certain requirements are met, head of household status can be claimed if the qualifying relative is a parent who does not live with the taxpayer. According to IRS Publication 17, the head of household tax table is also used by widows or widowers when there is a qualifying dependent and they no longer qualify to file a joint return or to use the joint return tax rates.

Qualifying Widow or Widower With Dependent Child

A person who was widowed during the current tax year can file a joint return. For the two years following the year in which the spouse died, the widow or widower also can use joint return tax rates if there is a child that qualifies as an exemption. If there is no dependent child, the widow or widower filing status would be single for the subsequent years, unless the taxpayer qualified for the head of household tax table.

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