Buzz
Your federal income taxes are going to be a bit different this year due to the 2017 Tax Cuts & Jobs Act. Changes have been made to credits, deductions, and your 1040 form.
It may not be exactly postcard-sized, but it’s certainly different. Let’s break it down.
What Is a 1040?
To start, if you’re not familiar with the terminology, IRS Form 1040 is your primary tax document where you report your income and calculate your refund.
Previously, there was the standard 1040, the 1040EZ (designed for simpler returns like those filed by singles), and the 1040A. This year, the redesigned 1040 is your only option—the 1040EZ and 1040A are no longer in use. However, if you’re filing past returns for years before 2018, you'll still need to use those forms.
You can download a 1040 and complete it manually, or use tax software to enter your information automatically.
Why Was It Changed?
As noted earlier, Republicans have long supported the idea of a tax return the size of a postcard, and most Americans would probably agree that it’s a better alternative to the current collection of forms and schedules. “Treasury approved a new approach that allows flexibility in managing future changes to the Form 1040 and aims to reduce the number of forms taxpayers need to choose from, consolidating it into one basic Form 1040 for all taxpayers,” according to the IRS.
The 2017 Tax Cuts & Jobs Act did reduce the size of your 1040, but it didn’t exactly simplify the process, as CNBC notes:
Although the form is now ‘postcard-sized,’ filers will still need to navigate through additional paperwork, called schedules, to calculate their tax deductions, such as those for
educator expenses
and
health savings account contributions
.
Now you have a smaller 1040 form, but there are six additional schedules to complete, depending on the credits and deductions you’re claiming (though, for most of us, software will do the heavy lifting).
What’s Actually Changed?
The main change is that instead of working through deductions and credits directly on your 1040, you’ll now handle that on various Form 1040 Schedules (if you have a simple tax situation, you won’t need to fill out any of the six schedules).
“The 2018 Form 1040 introduces a ‘building block’ approach, making it possible to reduce the federal tax return to one simple form,” according to the IRS. “Taxpayers can use additional numbered schedules if needed.”
The IRS mentions that if you use tax software, you might not notice much of a change—the software will automatically fill out the form for you.
Schedule 1: Additional Income and Adjustments to Income
You’ll complete this section if you have additional income, such as capital gains, unemployment compensation, prize or award money, or gambling winnings,” according to the IRS. This section also covers alimony income, rental income, farm income, and more.
This schedule is also used for deductions, including student loan interest, self-employment tax, educator expenses, and health savings account deductions.
Schedule 2: Tax
You need to file this form if you owe the Alternative Minimum Tax or if you owe tax on a child's unearned income.
Schedule 3: Nonrefundable Credits
You’ll complete Schedule 3 if you’re eligible for a nonrefundable credit other than the child tax credit or the credit for other dependents, such as the foreign tax credit, education credits, or the general business credit.
Schedule 4: Other Taxes
Schedule 4 is required if you owe taxes like self-employment tax, household employment taxes, additional taxes on IRAs or other qualified retirement plans, and tax-favored accounts.
Schedule 5: Other Payments and Refundable Credits
You will file Schedule 5 if you're eligible to claim a refundable credit other than the earned income credit, American opportunity credit, or additional child tax credit.
Schedule 6: Foreign Address and Third Party Designee
Finally, file Schedule 6 if you have a foreign address or a third-party designee other than your paid preparer. This is where you’ll provide your country, province, and postal code if you live outside the U.S., which was previously listed on page 1 of the 1040.
(Note: These schedules are different from others that remain in use for 2018, including Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule F, Schedule H, Schedule J, Schedule R, Schedule SE, and Schedule 8812.)
What Has Stayed the Same?
According to the IRS, the following sections of the 1040 “fundamentally” remain unchanged:
the fields for entering names and Social Security numbers,
the signature fields still appear on the first page,
the checkboxes for selecting Filing Status are still included,
the checkboxes for the Presidential election campaign donation.
The checkbox to report full-year health care coverage or an exemption is located on page one of the 2018 Form 1040.
Again, taxpayers who file electronically or hire a professional (which includes most people) likely won’t notice any major differences, and those with simpler tax situations won’t need to worry about the six schedules. The real change might come if you decide to switch from itemizing to the larger standard deduction this year.
