• Additional Child Tax Credit
• Adoption
• Alternative Minimum Tax
• Archer MSA Limits Increased
• Charitable contributions
• Earned Income Credit
• Education savings bonds
• Exemption amounts
• Hope and Lifetime Learning credits
• Itemized deductions
• Long-Term Care Premiums
• Medicare Part D Premiums
• Social security and Medicare taxes
• Standard deduction
• Standard mileage rates
• Tax rate schedules - 2007

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.

Adoption

Adoption credit. Beginning in 2007, the credit allowed for an adoption of a child with special needs is $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390. The credit begins to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more.

Adoption assistance program. Beginning in 2007, you may be able to exclude up to $11,390 from your gross income for qualifed adoption expenses paid or incurred by your employer under a qualified adoption assistance program in connection with your adoption of an eligible child. This income exclusion starts to phase out if your modified adjusted gross income is $170,820 or more and is completely phased out if your modified adjusted gross income is $210,820 or more.

Alternative minimum tax

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

AMT exemption amount decreased. The AMT exemption amount has decreased to $33,750 ($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 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).

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).

Restrictions on Charitable Contributions

All cash contributions made in tax years beginning after August 17, 2006, to any qualified charity must be supported by a dated bank record or a dated receipt.

Earned Income Credit Amounts Increase

Earned income amount. The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2007 if:

• You have more than one qualifying child and you earn less than $37,783 ($39,783 if married filing jointly),
• You have one qualifying child and you earn less than $33,241 ($35,241 if married filing jointly), or
• You do not have a qualifying child and you earn less than $12,590 ($14,590 if married filing jointly).

The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also 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. The maximum amount of investment income you can have in 2007 and still get the credit increases to $2,900.

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 married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $98,400 and $128,400. You cannot take the deduction if your MAGI is $128,400 or more. For 2006, the exclusion phased out between $94,700 and $124,700.

For all other filing statuses, your interest exclusion is phased out if your MAGI is between $65,600 and $80,600. You cannot take a deduction if your MAGI is $80,600 or more. For 2006, the exclusion phased out between $63,100 and $78,100. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.

Exemption Amount Increased

The amount you can deduct for each exemption has increased from $3,300 in 2006 to $3,400 in 2007.

You may lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2007, the beginning and ending phaseout amounts are:

If your adjusted gross income is within the range of the phaseout amounts for your filing status, use the Deduction for Exemptions Worksheet in the Form 1040 instructions to figure the amount you can deduct for exemptions. The exemption amount for taxpayers with adjusted gross income in excess of the maximum phaseout amount is $1,133 for 2007.

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 modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return). This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 if filing a joint return). For more information, see chapters 2 and 3 in Publication 970, Tax Benefits for Education.

Limit on Itemized Deductions Increases

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 married filing separately). See Publication 505 for more information on figuring the amount you can deduct.

Increase in Deductible Limit for Long-Term Care Premiums

For 2006, 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 - $280.
• Age 41 to 50 - $530.
• Age 51 to 60 - $1,060.
• Age 61 to 70 - $2,830.
  

Note. The limit is for each person.

Medicare Part D Premiums Deductible as Medical Expenses

Medicare Part D is a voluntary prescription drug insurance program for persons with Medicare A or B. You can include as a medical expense premiums you pay for Medicare D.

Social Security and Medicare Taxes

For 2007, the employer and employee will continue to pay:

1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and
2. 1.45% each for Medicare tax (hospital insurance).

Wage limits. For social security tax, the maximum amount of 2007 wages subject to the tax is $97,500. For Medicare tax, all covered 2007 wages are subject to the tax.

Standard Deduction Amount Increased

The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2007 than it was for 2006. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.

The basic standard deduction amounts for 2007 are:

• Head of household $7,850
• Married taxpayers filing jointly and qualifying widow(er)s $10,700
• Married taxpayers filing separately $5,350
• Single $5,350

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual's earned income.

For 2007, the additional standard deduction amount for a person who is age 65 or older or blind is $1,050. If you are single and not a surviving spouse, the additional standard deduction amount is $1,300.

Standard Mileage Rates

Beginning January 1, 2007, the allowable deductions for the standard mileage rate are as follows:

• Business miles. The standard mileage rate for the cost of operating your car increases to 48.5 cents a mile for all business miles driven.
• Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization remains at 14 cents a mile.
• Medical reasons. The standard mileage rate allowed for use of your car for medical reasons increases to 20 cents a mile.
• Moving. The standard mileage rate for determining moving expenses increases to 20 cents a mile.

2007 Tax Rate Schedules

The 2007 tax rate schedules are provided so that you can compute your estimated tax for 2007.