Senior Citizens Form 1040SR

Senior Citizens Form 1040SR

Part of the Bipartisan Budget Act of 2018 (BBA) included issuing Form 1040SR, which would be made available to any individual who is 65 years or older. In the past tax compliance has not been easy for these individuals. Seniors age 65 and older are not eligible to use Form 1040EZ. They could file Form 1040A, but may not find relief in filing this as there is a $100,000 cap on taxable income and there are prohibitions on itemized deductions from the enactment of the Tax Cuts and Jobs Act. You may be asking yourself, what is Form 1040SR? The Form 1040SR is similar to Form 1040EZ, except it is exclusive for seniors 65 years and older. Those taxpayers can still use other forms however, the Form 1040SR is just another option.

1040SR Purpose              

The main purpose of Form 1040SR is simplification. According to the Treasury Inspector General for Tax Administration (TIGTA) who came out with a report titled “Opportunities Exist to Help Seniors and Many Other Taxpayers That Repeatedly Make Mistakes on their Individual Tax Returns,” the two most common mistakes seniors made in calculating their taxable income are miscalculating Social Security benefits and the standard deduction. Taxpayers 65 and older and/or blind receive an additional standard deduction. They found that 95% of these mistakes were made by those who filed their own returns. The TIGTA made two recommendations to alleviate these mistakes.

The first recommendation is,

  • to improve the forms and instructions to help seniors file a more accurate return. Part of this is to include information that clearly shows the IRS’s toll-free number, to allow seniors to identify that they can receive help.

The second recommendation is,

  • associated with the location of the standard deduction on Form 1040. This can be confusing for seniors because it only shows in the left- hand margin the basic standard deduction and many seniors would only put the number that appeared. These taxpayers would miss the opportunity of the additional standard deduction, just because of the simple fact that it did not appear on the face of the form.

1040SR Plan

Form 1040SR is planned to incorporate all of these recommendations and more. The BBA expands the definition of gross income from that included on Form 1040EZ, which only allows a taxpayer to include:

  • W-2 wages
  • Tips
  • Unemployment compensation
  • Alaska permanent fund dividends
  • Taxable interest up to $1,500

The expansion includes no limit on the amount of interest and/or dividends, including tax-exempt. It requires that Form 1040SR be made available without any regard to the “amount of any item of taxable income” or to any “total of taxable income.” There are many questions that are arising in regards to the issuance of this form. The first being,

  • What deductions are allowed in calculating taxable income?

Since BBA refers to taxable income and will be similar to the Form 1040EZ, there will presumably be no deductions from adjusted gross income (AGI).

  • Will seniors be given the option to take the standard deduction or itemize, or not?

If this form were to be similar to the 1040EZ then this option would not be allowed. If they do allow this option then another line item would need to be added and taxable income would include any state tax refund and credits under the tax benefit rule. Additionally, line items would need to be added for any deductions or credits specifically available to the elderly, AMT and estimated tax payments as many seniors are retired and most likely do not have federal tax withheld from their income. Lastly, they will need to determine if the Form 1040SR will require the taxpayer be single or married filing jointly and if both spouses need to be 65 years or older. Included on Form 1040EZ is the earned income tax credit (EITC). To qualify for the EITC, taxpayers have to be ages 25 to 64. If they require both spouses to be over the age of 65, than the EITC would not be applicable.

1040SR Conclusion

Form 1040SR will be made available to taxpayers in 2019 to those that reach age 65 by the end of the tax year. There will be a lot of questions and answers once the form is released. Ultimately, the Form will try and address the complications seniors have in filing their taxes by making it easier to read, simplifying the tax process, making it more efficient and less time intensive. Stay tuned for more guidance on this form. If you would like some help to better understand the changes to you and your family, please contact our members at Team DKB!