As part of its continuing efforts to revise its form to reflect the many changes to individual income taxes enacted by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, the IRS released a draft Form 1040, U.S. Individual Income Tax Return, in July. This form is for the 2019 tax year, which will be filed during the 2020 tax season, but it was released early to allow the public to review and comment on the changes until Aug. 15. On Sept. 11, the IRS released a final draft form for 2019, which is closer to the final form.
The 2018 Form 1040 represented a radical departure from prior years’ forms. The main form lost more than 50 lines and was reduced to two half pages in length. Many of the lost 50 lines then appeared on six new schedules.
The draft 2019 Form 1040 makes more changes. Notably, it makes further changes to the main form and reduces the number of schedules from six to three.
Here’s a look at what’s new.
Calculating taxable income
The most noticeable change from the 2018 Form 1040 is that about half of the form has moved from page 2 to page 1. The 2018 form used the first page to gather information about the taxpayer and any dependents and for the taxpayer’s signature and jurat. All of the tax figures and computations were on page 2 of the 2018 Form 1040.
The 2019 form moves the 11 lines that calculate “taxable income” to the front page. The taxpayer’s income is calculated on the front page. Income — including wages, interest, dividends, IRA and pension distributions, Social Security benefits, capital gains, and other income — will be listed and totaled on the first page on the 2019 form to calculate adjusted gross income (AGI) (line 8).
On the next few lines, taxpayers will then list either their standard deduction or itemized deductions from Schedule A, Itemized Deductions, which must be attached, as well as any amount of Sec. 199A qualified business income deduction (for which taxpayers are told to attach Form 8995, Qualified Business Income Deduction Simplified Computation, or Form 8995-A, which is described below). The forms to calculate the Sec. 199A deduction are new for the 2019 tax year. In 2018, taxpayers had to complete a worksheet to calculate the deduction. The one-page draft Form 8995 contains the same computation that was found in the “2018 Qualified Business Income Deduction — Simplified Worksheet” on p. 37 of last year’s Form 1040 instructions. However, the taxpayer retained the worksheet, while the new forms will be attached to the taxpayer’s return and submitted to the IRS.
For more complicated Sec. 199A calculations, the IRS also created Form 8995-A, Qualified Business Income Deduction, which itself has four additional schedules: Schedule A, Specified Service Trades or Businesses; Schedule B, Aggregation of Business Operations; Schedule C, Loss Netting and Carryforward; and Schedule D, Special Rules for Patrons of Agricultural or Horticultural Cooperatives.
Taxpayers then add their standard or itemized deductions and Sec. 199A deduction and subtract the total from AGI to arrive at “taxable income” on line 11b.
Reduction in numbered schedules
Another big change from the 2018 form is the reduction (from six to three) of numbered schedules that are available and may be required to complete the 2019 return.
One of the original schedules for 2018 was Schedule 1, Additional Income and Adjustments to Income. The 2019 return retains this schedule with the same name and similar items included.
The 2018 return had a Schedule 2, Tax, which included items such as the tax on a child’s unearned income (commonly called the kiddie tax). The same schedule survives into 2019, but it has been renamed Additional Taxes. This version includes the alternative minimum tax, repayment of excess premium tax credit, self-employment tax from Schedule SE, Self-Employment Tax, and household employment taxes, as well as other taxes.
The 2018 Schedule 3, Nonrefundable Credits, included the foreign tax credit, the credit for child and dependent child care, the education credit, and the residential energy credit. Schedule 3 for 2019 has been renamed Additional Credits and Payments and has had a number of other items added that were previously on the 2018 Schedule 5.
Schedule 4, Other Taxes, and Schedule 5, Other Payments and Refundable Credits, which were part of the 2018 Form 1040, have both been eliminated for 2019. These items have been moved to the renamed Schedules 2 and 3.
Finally, Schedule 6, Foreign Address and Third Party Designee, has also been eliminated. Taxpayers with foreign addresses could list their country here (this information is now reported on page 1 of Form 1040, as it was before 2018), and it gave taxpayers a place to list information for a third-party designee. Third-party designee information is reported in 2019 on page 2 of Form 1040, as it was before 2018.
Calculating tax and amount due to be paid or refunded
Page 2 of the draft 2019 Form 1040 no longer contains the calculation of taxable income, which, as described above, is included on page 1 of the return. The calculation of the amount of the taxpayer’s tax due, payments and credits, and refund of tax due or balance of tax owed are reported on page 2. The format of these calculations is similar to that found on the 2018 Form 1040, with changes made as necessary to take into account the changes to Schedules 1 through 3 and the elimination of Schedules 4 and 5.
Page 2 of the 2019 Form 1040, in another break from the 2018 form, contains the section for taxpayers’ signatures and jurats, as well as the sections for providing third-party designee and paid preparer information. These items had before 2017 been on page 2 of Form 1040, but on the 2018 form, the signature and jurat section had been moved to page 1 of the return, and the third-party designee and paid preparer sections had been moved to Schedule 6, which, as described above, has been eliminated for 2019.
The IRS’s goal in revising Form 1040 and reducing the number of schedules from 2018 to the 2019 version is presumably an attempt to make filing less confusing for taxpayers and tax preparers. Only a completed filing season will tell whether it has succeeded.