Marginal and Effective Tax Rates

Knowing your income tax rate can help you calculate your tax liability for unexpected income, retirement planning or investment income. This calculator helps you estimate your effective (or average) tax rate, your current tax bracket, and your marginal tax rate. Press the view report button for a more detailed look at how we calculate your tax rates and what they mean to you. This calculator uses the preliminary 2005 tax tables, subject to modifications by the IRS and changes in the tax code.

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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.

  1. 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.

  2. 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.

  3. 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.

  4. 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 rateMarried filing jointly
    or Qualified Widow(er)
    SingleHead of householdMarried 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 (

  1. 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%.

  2. 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.

  3. 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.

  4. 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.

Wages, salaries, tips, etc.
This is your total income for the year. To keep things simple this calculator assumes this is your net income, after deductions for retirement contributions such as 401(k)s, IRAs, etc.

Filing status
Choose your filing status. Your filing status determines the income levels for your Federal tax bracket. It is also important for calculating your standard deduction, personal exemptions, and deduction phase out incomes.

Are you someone's dependent?
Choose 'no' if no one can claim you or your spouse as a dependent. Choose 'yes' if someone can claim you as a dependent. Choose 'both you and your spouse if you both are dependents. (You are a dependent if someone supports you and can claim a dependency exemption for you.)

Number of additional dependents
A dependent is someone you support and for whom you can claim a dependency exemption. Each dependent you claim entitles you to receive a $3,200 reduction in your taxable income. In 2005, each dependent under the age of 17 also receives a tax credit of $1000. The credit is, however, phased out for higher incomes. This calculator assumes that all dependents claimed qualify for the child tax credit.

Itemized deductions
This is the total of your itemized deductions that you can include on schedule A of your Federal income taxes. For most people this includes state income taxes paid for the year, interest on a mortgage and any charitable contributions. Other itemized deductions include certain investment expenses, medical expenses exceeding 7.5% of your adjusted gross income, and some moving expenses.