Which Tax Form To File Now That 1040A & 1040EZ Are No Longer Used?
What You Need to Know About the New 1040 Return
In June 2018, the IRS announced it was taking steps to streamline and simplify the income tax return process. This overhaul is part of the Tax Cuts and Jobs Act (TCJA), which was signed into law by President Trump on December 22, 2017.
Some tax return forms, including Form 1040A and Form 1040EZ, are being eliminated altogether starting with tax year 2019. The old Form 1040 (a.k.a. “the long form”) is being replaced by a condensed, postcard-sized version that all taxpayers will use – with additional schedules/forms to attach if needed.
The New Postcard-Sized 1040 Return
U.S. Treasury Secretary Steven T. Mnuchin stated, “The new, postcard-size Form 1040 is designed to simplify and expedite filing tax returns, providing much-needed relief to hardworking taxpayers.”
The simplified Form 1040 consolidates the three older versions of the 1040 return (Forms 1040, 1040A, and 1040EZ) into one form. The IRS has released a draft copy of the new 1040 form, which it will continue to revise until the next filing season begins in January 2019.
The new 1040 form is basically two half-pages. The first page (i.e. the front of the postcard) is mainly for personal information – such as your name, Social Security Number (SSN), address, dependents, and signature. The second page (i.e. the back of the postcard) is where you report your income, tax deductions, tax credits, and tax refund information.
Here’s an overview of some items that are changing with the new 1040 – based on the draft version that the IRS released – versus items that are staying (mostly) the same:
On the draft Form 1040, there’s a new line item directly under your name containing checkboxes for the standard deduction. Note that there is a reduced standard deduction for individuals who can be claimed as a dependent on someone else’s tax return, and additional standard deductions for taxpayers who are elderly or blind. The amount of the standard deduction usually changes every year. To check the current amounts, see 2018 Federal Tax Rates, Personal Exemptions, and Standard Deductions.
The new (draft) 1040 still allows you to enter up to 4 dependents. If you have more than 4 qualified dependents, you will need to add another page to your tax return.
All of the personal exemption amounts have been eliminated for tax year 2018 through tax year 2025. Therefore, this section has been removed from the 1040 return altogether.
Health Care Coverage
The federal government still demands that all individuals have health insurance for tax year 2018. On the new 1040, there is a checkbox for health care coverage on the front/first page of the form, right after you enter your name. (On the old Form 1040, it was on Line 61 of Page 2 in the “Other Taxes” section.) An additional form/schedule will likely be required for individuals who did not have full-year health insurance coverage in 2018.
On the old 1040 form, there were separate sections for Income, Adjusted Gross Income, Tax and Credits, Other Taxes, and Payments. The new/draft 1040 has consolidated all of these into one section (so far unnamed). This new section starts with your wages and other income, and then it has you calculate your total income and adjusted gross income (AGI). On the line for “Adjusted gross income” (Line 7), it mentions a new tax form: Schedule 1. Next, you report your deductions (including standard, itemized, and qualified business income deduction) and calculate your taxable income on Line 10. Line 11 mentions another new form: Schedule 2.
On the draft 1040, the Child/Dependent Tax Credit is reported on Line 12, and this looks to include a new form as well: Schedule 3. Refundable tax credits, such as the Earned Income Credit, are now reported on Line 17.
With the new 1040, you will begin entering your tax payments on Line 16, starting with any federal income tax withheld from your wages during the year. After you calculate your total payments, you’ll move on to the “Refund” section. If you owe tax, you will enter that amount on Line 22. The IRS still offers the same payment options – including payment by check or money order, Electronic Funds Withdrawal (if you e-file online), and credit or debit card.
The “Refund” section is essentially the same on the new/draft 1040 as it was on the old 1040 form. Here, you can enter your bank account information if you want your tax refund issued via Direct Deposit.
New Tax Schedules – Attachments for Your 1040
Many of the old schedules (e.g., Schedule A, Schedule C, Schedule K-1) are still being used, so the IRS is assigning numbers to the new schedules. Here are some of the new schedules that will be used, starting with tax year 2018:
Here is the draft version of Schedule 1 (Form 1040), Additional Income and Adjustments to Income. It has a section for “Additional Income” and another section for “Adjustments to Income.” On this form, you are expected to report alimony, business income/loss, capital gains/losses, unemployment compensation, and other types of taxable income. The second section is where you’ll report tax deductions and any other adjustments to your income
Here is the draft version of Schedule 2 (Form 1040), Tax. So far, it only has 4 lines, including lines for the Alternative Minimum Tax (AMT) and excess advance Premium Tax Credit repayment.
Here is the draft version of Schedule 3 (Form 1040), Nonrefundable Credits. You will use this form to report any nonrefundable tax credits – such as the Foreign Tax Credit, the Credit for Child and Dependent Care Expenses, education tax credits, and the Residential Energy Efficiency Tax Credit.
Here is the draft version of Schedule 4 (Form 1040), Other Taxes. You’ll use this schedule to report items such as self-employment tax, household employment taxes, and the health care “individual responsibility” tax.
Here is the draft version of Schedule 5 (Form 1040), Other Payments and Refundable Credits. This is where you’ll enter any estimated tax payments that you made during 2018, and report refundable credits such as the Net Premium Tax Credit and the Credit for Federal Tax Paid on Fuels.
Once the IRS releases the final version of their new postcard-sized Form 1040 for tax year 2018, we will publish a guide for how to navigate the new tax return with line-by-line instructions.
From the looks of it, nearly everyone will need to include additional schedules/forms as attachments with their new 1040 return. So does this really simplify the process? Let us know after you’ve filed next year.