IRS new draft schedules may bulk up the old 1040
The Internal Revenue Service’s six new schedules for the Form 1040 hardly seem to fit onto a postcard.
Last week, the IRS and the Treasury Department posted a preview of the postcard-size Form 1040 that Trump administration officials and Republican lawmakers promised to usher in with last year’s tax overhaul (see IRS and Treasury preview postcard-size Form 1040). Only images of the front and back of the form were initially available online last Friday, but eventually the IRS posted the draft version of the new Form 1040, along with six new schedules (originally there were going to be five, but now a sixth one has appeared too). Even as the draft Form 1040 itself has shrunk, the number of schedules has only grown. That doesn’t even include the traditional schedules like Schedule A for itemized deductions, Schedule B for interest and dividends, and Schedule C for profit or loss from a business.
Now we have the draft Schedule 1, which is for “Additional Income and Adjustments to Income.” Under additional income, there are items like taxable refunds, credits or offsets of state and local income taxes, along with alimony received, unemployment compensation and other income. There are also lines for business income or losses, for which a Schedule C or C-EZ needs to be attached, and capital gains or losses, for which a Schedule D may need to be attached. Other lines for rental real estate, royalties, partnerships, S corporations, trusts, etc., may require a Schedule E, while farm income or losses may require a Schedule F. Other lines, as on all the draft forms and schedules, have been reserved for some unspecified future use.
Under adjustments to income, the lines include educator expenses; certain business expenses of reservists, performing artists, and fee-basis government officials; the health savings account deduction; moving expenses for members of the armed forces; the deductible part of self-employment tax; self-employed SEP, SIMPLE and qualified plans; the self-employed health insurance deduction; the IRA deduction; and the student loan interest deduction.
The draft Schedule 2 is for “Tax” and is comparatively brief, with separate lines for tax, tax on child’s income, tax on lump sum distributions, other taxes, alternative minimum tax, and excess advance premium tax credit. But these lines too often require attaching separate forms.
The draft Schedule 3 is also relatively brief and is for “Nonrefundable Credits.” They include the foreign tax credit, the credit for child and dependent care expenses, education credits, the retirement savings contributions credit, the child tax credit and credit for other dependents, the residential energy credit, and the general business credit. These too often require attaching separate forms, many of which will be familiar from past tax seasons.
The draft Schedule 4 is devoted to “Other Taxes.” Those include the self-employment tax, Social Security and Medicare tax on tip income not reported to the employer, along with uncollected Social Security and Medicare tax on wages. There are also lines for the additional tax on IRAs, other qualified retirement plans and other tax-favored accounts, as well as household employment taxes, and repayment of the first-time homebuyer credit. Schedule 4 also includes several Obamacare taxes: the health care individual responsibility payment (even though this was supposedly repealed by the new tax law), the additional Medicare tax, and the net investment income tax.
The draft Schedule 5 is dedicated to “Other Payments and Refundable Credits.” This one too includes several lines reserved for future use, including one at the very top, which for some reason is listed as number 65, probably because many of them originated from earlier longer tax forms. The other lines that are provided here include 2018 estimated tax payments and the amount applied from the 2017 return, the net premium tax credit, the amount paid with a request for an extension to file, excess Social Security and tier 1 tax withheld, the credit for federal tax on fuels, and the health coverage tax credit.
The surprise draft Schedule 6, which isn’t even referred to on the draft Form 1040, is for “Foreign Address and Third Party Designee,” and it’s even shorter than the other schedules. It only has a handful of different fields: for the foreign country name, foreign province or county, foreign postal code, along with fields for a third-party designee such as a tax practitioner who is authorized to discuss the return with the IRS.
All in all, even though the new Form 1040 appears to be shorter in the name of tax simplification, the number of new schedules and add-on forms that will be required suggest taxes aren’t going to be getting much simpler next tax season or in the foreseeable future.