Just when you have adjusted to the new tax forms of 2018, you may be in for a surprise if you are over age 65 for your 2019 tax return. It’s the newest twist for seniors and it is the new 1040-SR senior tax form that may in fact be the perfect thing for seniors to use!
Fifteen million of the 150 million Americans who filed taxes last year were seniors, so filing an IRS tax return is likely to be simpler next year for about 10% of those who do so. To use this form, you have to be 65 prior to January 1, 2020.
What Are the Benefits of the New Form?
There will be a brand new tax form coming which is the new 1040-SR form. It was designed specifically for older Americans (age 65 and up) and will be out just in time for filing their 2019 taxes in 2020!
The rationale behind the new two-page filing form is that it should be much easier for seniors to see. The form will be printed in large print so that it will be easier to see and read. But that’s not the only senior benefit: some of the shading around the boxes that tax filers complained about has been removed, making the form brighter. That also is a plus.
The new form will also be a timesaver. The average 1040 form takes over five hours for completion and this form is projected to take less than half of that time (Source: IRS, Form 1040 Instructions, “Estimates of Taxpayer Burden”).
What About the Easy 1040-EZ?
Many older Americans were previously forced to file the longer, more complicated Form 1040, which takes about twice as long to complete, because they couldn’t meet the requirements for filing Form 1040-EZ.
The 1040-EZ form is limited to those with income deriving from wages, salaries, tips, unemployment compensation, taxable scholarships, and fellowship grants. Dividend income is restricted (only Alaska Permanent Fund payments are allowed) and most importantly, taxpayers age 65 and older are not permitted to file the 1040-EZ. That’s because what’s missing from the list of types of income on it is Social Security retirement benefits and income from qualified retirement plans or annuities.
The new form will be somewhat comparable in style to the 1040-EZ form that was phased out last year and should prove especially helpful for seniors who receive much of their yearly income from capital gains.
One more bonus on the new form is that it will now allow you to immediately figure out what, if any, refund you’ll get back since the Standard Deductions Chart is right on the form. Previously, seniors had to look it up and many had difficulty reading and accessing the number without help.
Why a New Form?
The 1040-SR, the name and number assigned to the new tax form, is the result of a congressional mandate to the IRS to allow seniors the ability to file easily and without benefit of an accountant. That is some welcomed news because it has become increasingly expensive to use the services of an accountant and many seniors need help with even the basic forms. Despite having options for free services available to them, they often pay someone for their help.
The new form is still in a “draft” format, but since it should be finalized by late 2019, it will be available for those who want to use it to file their 2019 taxes, accountants say. In the interim, taxpayers can still file comments to the IRS about it. View the draft and instructions for filing comments here.
The new 1040-SR form will likely help a broad swath of older Americans, including Baby Boomers, who want to handle their own finances. It can aid those in need of a simpler way to configure and pay taxes, especially seniors who are computer-averse and still prefer to file by paper rather than electronically.
What Will It Look Like?
The two-page form has already received recognition and some approval by senior advocates and generated little controversy. The new form has lines for specific retirement income streams, such as Social Security benefits, IRA distributions, pensions, and annuities.
One sign of the times is that seniors will now be able to take a child tax credit if they’re still taking care of a “dependent child” or grandchild which had become such a common occurrence in the 21st century.
What’s the Downside?
So what’s the downside? For one, using Form 1040-SR doesn’t allow you to itemize. This may not be a problem for the huge numbers who now can utilize the increased standard deductions which began in the 2018 tax year under the new tax law. If you have to itemize because of state and local taxes or charitable giving, then you will not be using Form 1040-SR.
In addition, seniors who still operate a small business will need to continue filing on standard Form 1040 with Schedule C, which details their expenses and profits. If you do something like I do, operate a blog or other side gig as a business, then 1040-SR is not for you.
Some of these taxpayers have the option of filing Form 1040-A, but this form doesn’t allow for itemized deductions. It also caps total income at $100,000 just as the 1040-EZ did (seniors can’t use a 1040-EZ after age 65), but imposes no limit on interest income and it doesn’t close the door on income from retirement benefits and Social Security.
Those who have seen the 1040-SR prototype are concerned that it really isn’t less complicated and that it still isn’t capable of handling all the diverse types of income a retiree might have. Additionally, all the qualifying rules aren’t really firm yet.
The jury is still out right new until the new senior tax form is published and only time will tell if Form 1040-SR really is easier or if it just complicates what is already a complex system of filing options especially for seniors. Form 1040-SR was not the IRS’ idea. Instead, it is the result of a long battle in Congress to make it easier for seniors to pay their taxes, a fight finally resolved by the Bipartisan Budget Act of 2018.
The new legislation and form aren’t perfect, however, Form 1040-SR is a step in the right direction when it comes to the simplification of tax-filing requirements. Knowing that it’s soon to be an option can help many seniors determine whether that will be their best filing option and do a little tax planning now and for the future too.
Do you still file your taxes on a paper form? If you’re a senior, will you try the new 1040-SR to file your taxes?