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The “postcard-size” 1040 form may be shorter than the previous one, but with its addition of new schedules, it’s not necessarily simpler.
In June 2018, the U.S. Department of the Treasury and the IRS unveiled a newly redesigned Form 1040 — the U.S. individual income tax return form used by taxpayers to file their annual income tax return. The initiative was tied to the Tax Cuts and Jobs Act of 2017, which made significant changes to U.S. tax law.
In a press release, the Treasury Department called the new tax form “postcard-size,” and Treasury Secretary Steven Mnuchin said it was “designed to simplify and expedite filing tax returns, providing much-needed relief to hardworking taxpayers.”
That might be up for debate. The new Form 1040 is shorter than its predecessor — covering half of a standard 8.5-by-11-inch sheet of paper (front and back) and consisting of 23 lines rather than 79. But it also comes with a number of new 1040 schedules that many taxpayers may need to attach to their “postcard” return.
Why all the new 1040 schedules?
The new Form 1040 doesn’t really eliminate the amount of information taxpayers need to provide when filing their return. It removes some lines from the main form and moves them to separate schedules that you may need to attach to your 1040.
This change may simplify the process of filling out the 1040 form for taxpayers who don’t need those removed lines. But the income, deductions and credits that have been moved to the new 1040 schedules include common items like the student loan interest deduction, self-employment tax, education credits and estimated tax payments.
This new Form 1040 can also simplify the process of deciding which form you should use to file your taxes. In the past, taxpayers had three forms to choose from: the 1040, 1040EZ or 1040A. The 1040A and 1040EZ were pared-down versions of Form 1040, and were designed for people with taxable income of less than $100,000 and fewer sources of income to report, deductions to take and credits to claim.
The new postcard-size 1040 replaces all three forms. If you used a simplified version of the 1040 in the past, you might be able to file the postcard-size 1040 alone — but it’s not a sure thing.
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A look at the new 1040 schedules
Six new schedules accompany the new Form 1040. Here’s an overview of what they cover.
The old Form 1040 provided 15 lines for reporting various types of income, with Line 21 as a catchall for “Other Income.” The new 1040 gives you just five lines for reporting income from wages, interest and dividends, retirement income and Social Security. Other forms of income are now reported on Schedule 1.
Types of income on Schedule 1
Schedule 1 is where you’ll report items such as …
- Taxable refunds of state and local income taxes
- Alimony received
- Income or loss from a business
- Capital gains and losses
- Rental and royalty income
- Income from certain pass-through businesses
- Farm income or loss
- Unemployment compensation
Line 21 on Schedule 1 is a catchall for other types of income, such as prizes and awards or gambling income.
Some of the above-mentioned items have their own schedules. For example, income or loss from a business is usually reported on Schedule C on Form 1040, and capital gains and losses get reported on Schedule D. These detailed schedules are still required; they haven’t been replaced by Schedule 1.
In fact, Schedule 1 has its own set of detailed instructions that include directions for the different forms that you’ll need to file — in addition to Schedule 1 — for different types of income included on the schedule.What counts as taxable income?
And in some cases, you may need information from other forms in order to complete Schedule 1.
Adjustments to income on Schedule 1
Also included on Schedule 1 is the Adjustments to Income section, which used to be reported on Page 1 of Form 1040. These items — which are known as “above-the-line” tax deductions because you don’t have to itemize your deductions to take them — include …
- Educator expenses
- Business expenses of reservists, performing artists and fee-based government officials
- Health savings account deductions
- Moving expenses (this deduction is only available for members of the armed forces)
- The deductible portion of self-employment taxes
- Contributions to self-employed retirement plans
- Self-employed health insurance deductions
- Penalties for early withdrawals of savings
- Alimony paid
- Contributions to IRAs
- Student loan interest deduction
As we mentioned before, these are not little-used adjustments. For example, in the 2016 tax year, taxpayers claimed the student loan interest deduction on more than 12.5 million returns and educator expenses appeared on nearly 4 million returns, according to the IRS’ Spring 2018 Statistics of Income Bulletin.
Schedule 2 is one of the shortest of the new tax schedules. It provides lines for reporting alternative minimum tax, or AMT, and repayment of excess premium tax credit. There are two primary circumstances in which you’ll need to use Schedule 2:
- You are required to pay the AMT
- You received a credit in the form of lower monthly payments on health insurance purchased through a state exchange or the federal marketplace, but you need to repay some portion of the credit because your household’s modified adjusted gross income was higher than originally estimated
In each case, you’ll have additional forms to attach to your 1040 along with Schedule 1. If you owe AMT, you’ll attach Form 6251. For repayment of a health insurance premium tax credit, you’ll use Form 8962.
Tax credits can be refundable or nonrefundable. Refundable tax credits can result in a refund even if you don’t have any tax liability. Nonrefundable credits, on the other hand, may reduce your tax bill to zero, but you won’t get a refund beyond your tax liability.
If you can claim any nonrefundable tax credits, you’ll do so on Schedule 3. Some of these include …
- Foreign tax credit
- Credit for child and dependent care expenses
- Education credits
- Retirement savings contribution credit
- Residential energy credit
Schedule 3 does not replace the forms required for calculating these credits, such as Form 2441 Child and Dependent Care Credit or Form 8863 Education Credits; it merely replaces some lines from the old Form 1040.
In 2016, taxpayers claimed education credits on more than 9 million returns and the retirement savings contributions credit on more than 8.5 million returns, according to the IRS.
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Schedule 4 is where you’ll report other taxes you might owe in addition to your standard income tax. This includes items such as …
- Self-employment tax (which also requires you to file Schedule SE – Self-employment Tax)
- Unreported Social Security and Medicare tax
- Additional tax on IRAs and other retirement accounts
- Household employment taxes (which also requires you to attach Schedule H)
- Repayment of the first-time homebuyer credit
- The Affordable Care Act individual penalty
In 2016, taxpayers reported self-employment tax on more than 19.3 million returns, according to the IRS.
Schedule 5 is what you’ll fill out to report the payment of taxes other than what’s withheld on your behalf by employers. This includes estimated tax payments and the amount you pay in when you request an extension of time to file your tax return.
Among other items on the schedule, there’s also a line for the net premium tax credit, for people who purchased health insurance on a state exchange or the federal marketplace. If you use this line, you may also need to attach Form 8962.
You will need to complete Schedule 6 if you have a foreign address or want to name a third-party designee whom the IRS can talk to about your return.
A third-party designee is a person you designate as someone who can discuss your tax return with the IRS. This authorization only lasts for one year from the due date of the return. If you hire a professional to prepare your tax return, you might authorize that person to list their name, phone number and preparer tax identification number, or PTIN, so they can provide missing information to the IRS, check on the status of your refund and respond to IRS notices on your behalf.
If you have a straightforward tax return to file — for example, your only income is W-2 wages, you claim the standard deduction, have no dependents and don’t claim any credits — you might be able to file using the new Form 1040 without any supporting schedules.
But take a close look at those schedules before finalizing your return. In a letter to the Treasury Department, the National Association of Tax Professionals expressed concern that by moving many deductions and credits to separate schedules, taxpayers might miss out on tax breaks for which they are eligible.
However, most taxpayers likely won’t notice a difference. As the IRS notes on its page devoted to the new 1040 and schedules, “Tax return preparation software will automatically use their answers to tax questions to complete the Form 1040 and any needed schedules.” In fact, if you use Credit Karma Tax®, a free online tax preparation and filing service, the product can complete many of the necessary schedules and most forms for you.
Still, it’s a good idea to familiarize yourself with the format of the new Form 1040. That way, you’ll know what you’re looking at when it’s time to review your return, whether you do it yourself with a free tax service or hire a tax professional to prepare your return for you.