- Recent tax legislation
- The "Jobs and Growth Tax Relief Reconciliation Act" passed in 2003, and additional, related legislation since, 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 2005.
- 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.
- 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 2005 at $10000. 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.
- The 10% tax bracket: In 2004 and 2005, single taxpayers will pay 10% tax on income up to $7,150, increased from $6,000 under the old law. Likewise, married couples filing jointly will have an increase from $12,000 to $14,300.
- Lower tax rates: While unchanged from 2004, the 2003 tax law accelerated rate reductions for all brackets above 15%. Below are the resulting tax rates and income ranges for 2005:
|Filing Status and Income Tax Rates 2005||Tax rate||Married filing jointly|
or Qualified Widow(er)
|Single||Head of household||Married filing separately
|10%|| $0 - 14,600 || $0 - 7,300 || $0 - $10,450 || $0 - 7,300|
|15% || $14,601- 59,400 || $7,301- 29,700 || $10,451- 39,800 || $7,301- 29,700|
|25%|| $59,401- 119,950 || $29,701- 71,950 || $39,801- 102,800 || $29,701- 59,975|
|28%|| $119,951- 182,800|| $71,951- 150,150 || $102,801- 166,450 || $59,976- 91,400|
|33%|| $182,801- 326,450 || $150,151- 326,450|| $166,451- 326,450 || $91,401- 163,225|
|35%|| over $326,450 || over $326,450 || over $326,450 || over $163,225 |
Source: Revenue Procedure 2004-71 (http://www.irs.gov/pub/irs-drop/rp-04-71.pdf)
- Reduced Taxes on Capital Gains: Unchanged from 2004, the capital gains tax rates of 15% and 20% have been reduced to 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%.
- 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.
- Alternative Minimum Tax (AMT): The new tax law increases the AMT exemption for married filers to $58,000 for 2004 and 2005. It has also increased the AMT exemption to $40,250 for single filers for 2004 and 2005. Please note that calculating the impact of AMT on your taxes is beyond the scope of this calculator. Please see your tax professional for assistance if you believe that you will be required to pay the AMT.
- 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 2005. Those over 50 can contribute $4,500.
- Dependent status
- A dependent is someone you support and for whom you can claim a dependency exemption. In this case, you need to select the dependent status for you and your spouse. You receive a $3,200 reduction in your taxable income for yourself and another $3,200
reduction for your spouse if no one else can claim either of you as a dependent.
- Wages, salaries, tips, etc.
- Total income you received from wages, salaries and tips. The 1040EZ calculator does not support other types of income. If you have income from other sources you may need to use the 1040 Tax Form.
- Unemployment compensation
- If you collected any unemployment compensation, it is considered taxable income. Enter the total amount received here.
- Taxable interest
- If you received any interest that is subject to income taxes, enter the total amount received here.
- Standard deduction
- This is a standard amount, which varies by your filing status, which you are allowed to deduct from your income before calculating your income tax.
- Taxable income
- This is your total taxable income. It is calculated as your total income minus your standard deduction and your deduction for exemptions.
- Earned income credit
- If you qualify for earned income credit, enter that amount here.
- Federal income tax withheld
- Enter the total of all federal income tax that you expect to have withheld from your pay throughout the year. We will use this amount to calculate your total refund or amount you may owe.