Government Affairs

Draft of New U.S. IRS Form 1040 Draws Mixed Reviews

The U.S. Internal Revenue Service (IRS) draft shrinks the Form 1040 to the size of a large two-sided post card, reflecting promises of Republicans that the filing process would be simpler after the Tax Cuts and Jobs Act of 2017 (TCJA).

However, return preparers and critics immediately pointed out that the return is shortened only by moving lines that previously appeared on the Form 1040 itself to six separate schedules that must be filed along with it. Those schedules contain the summaries of many of the items of income, adjustment, payments, credits, and other information that formerly occupied lines on the Form 1040 itself.

Interestingly, the base form and its six schedules still contain almost the same number of line items as the old Form 1040 (75, versus 79 on the old form).

Taxpayers will also still have to fill out the old schedules to detail itemized deductions (Schedule A), interest and dividends (Schedule B), business income (Schedule C), capital gains (Schedule D), rental income (Schedule E), and so on. That is, little seems to be changed except that the Form 1040 itself is shortened by moving summaries of many items to subordinate schedules that are still part of the Form 1040.

Related: U.S. IRS Launches New Audit Campaigns Targeting Nonresidents

The draft form separates the most common forms of income (wages, interest, dividends, and social security) from all other forms of income and includes them on the base form.

  • Any taxpayer with other types of income (capital gains, business income, rental income, taxable refunds, for example) must complete Schedule 1, which also contains all of the ordinary Adjustments to Income allowed in determining Adjusted Gross Income.
  • Schedule 2 contains additional tax computations.
  • Schedule 3 includes all nonrefundable credits such as the child tax credit or foreign tax credit.
  • Schedule 4 is required for “other taxes,” such as self-employment tax, and the net investment income tax.
  • Schedule 5 is required to report items such as payments of estimated tax.
  • Schedule 6 is used to report a foreign address, or to authorize a third party to discuss the return with the IRS.

While not all taxpayers will need to use all the six subordinate schedules, return preparers complained that separating numerous common return items from the basic form complicates filing and will confuse many taxpayers.

No doubt additional changes will be made as comments are received on the draft form, but software providers must immediately begin working on revising their programs to reflect how the new form will be put completed.

The Treasury Department has promised to continue working to simplify the forms going forward. However, the draft form illustrates that while the TCJA made many changes beneficial to individual taxpayers, it did not substantially simplify the tax code for many of them.

Related: U.S. Treasury & IRS to Address State Tax Deduction 'Workarounds'

How This Impacts Mobility

Worldwide ERC members should note that the new form does not require any specific reporting of newly-taxable moving expense reimbursements or payments. Those will be included in wage income, as are other taxable relocation costs.

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