Update July 2018: The IRS has released a draft version of the 2018 Form 1040. The new form, which should be finalized by the end of the summer, will shorten the form while also consolidating the 1040, 1040A and 1040EZ into one form for all filers. We will update this article when the IRS releases the finalized Form 1040.
IRS Form 1040A is less restrictive than the single-page IRS Form 1040EZ, but not as time-consuming and complicated as the long-form 1040. The regular 1040 allows for lots of income types and adjustments to income. The more complicated your finances, the more likely it is that you’ll have to do battle with the 1040. If you can use 1040A, though, you’ll find it much simpler.
Form 1040A Eligibility Requirements
Only certain filers are eligible to use Form 1040A. You could be one of them if you meet the following requirements:
- Your taxable income is less than $100,000
- Your income comes only from wages, interest and dividends, capital gain distributions, taxable scholarships and grants, unemployment benefits, Alaska Permanent Fund dividends, pensions, annuities and IRAs. Got self-employment income? You can’t use Form 1040A.
Limitations of Form 1040A
Filers who use Form 1040A can take certain above-the-line deductions such as those for contributing to an IRA, for out-of-pocket educator expenses, student loan interest and tuition payments. These will reduce your taxable income. What you can’t do on Form 1040A, though, is itemize your deductions. You can only take those above-the-line deductions and the Standard Deduction. So, if you think you stand to gain from itemizing your deductions instead of taking the Standard Deduction (most people don’t) you should use Form 1040.
Form 1040A lets you take more tax credits than 1040EZ, but not as many as Form 1040. On 1040A you can claim (if you’re eligible) credits for child and dependent care expenses, for the elderly or disabled, for retirement savings (the Saver’s Credit) and for education expenses. You can also claim the Earned Income Tax Credit (EITC). Also available to folks who use the 1040A are the Additional Child Tax Credit, the American Opportunity Credit and the Net Premium Tax Credit.
Remember that a tax deduction reduces your tax bill indirectly by shrinking your taxable income. A tax credit reduces your tax bill directly by giving you a dollar-for-dollar reduction of your taxes owed. Tax credits come in refundable and non-refundable form. Say you’re eligible for a credit that exceeds the amount of tax you owe. If it’s a refundable credit you’ll get the difference between the credit and your taxes owed refunded to you. If the credit is not refundable, your taxes owed will shrink to zero but you won’t get the difference refunded.
If You Decide to Use Form 1040A
The IRS website provides filers with detailed, step-by-step instructions on how to fill out Form 1040A. As with all the 1040 Forms, the basic flow will start with your personal information, then move on to your income, deductions and credits. If you don’t know how to fill out Form 1040A the IRS instructions are your best friend. If you’re using tax software (like TurboTax or TaxSlayer) or a tax accountant, you probably don’t need to read those instructions word for word.
As with any tax form, the twin goals with 1040A are to provide accurate, complete information and to get the most out of what that form can do for you. If you under-claim credits and deductions you’ll owe more to the IRS – or get a smaller refund – than you really should. Over the course of your tax-paying life you might start off using Form 1040EZ when you’re just starting out in your career. Then, you might graduate to 1040A once you’re eligible for more deductions and credits. Finally, if your finances become particularly complicated and/or your net worth grows you may move on to the long-form 1040. The important thing is to file the right form for your circumstances in a given year.
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