Parliamentarians have been trying for years to slightly give the seniors a bit of break at the time of taxation, and the 2018 bipartisan Budget Act has finally taken a decisive step in this direction by simplifying the filing of taxes for individuals aged 65 years and older. Now they will have their tax form, 1040-SR.
It is said to be similar to 1040-EZ in many ways and much easier to negotiate than in Form 1040. The tax form was proposed first in 2013 under the Seniors Tax Reconciliation Act. The National Taxpayers Union, AARP, and the Association of American Mature People supported the bill. Unfortunately, it never received approval from the Senate.
As a result, on February 9, 2018, President Donald Trump signed the Bipartisan Budget Act. The BBA has asked the Internal Revenue Service to create and publish Form 1040-SR.
Many older Americans have had to fill out more and more 1040 forms, which takes about twice as much time because they have not been able to meet the 1040-EZ filing requirements.
1040-EZ is restricted to persons with income from wages, salaries, gratuities, unemployment benefits, fellowship grants, and taxable scholarships. Dividend income is limited to payments from the Alaskan Permanent Fund. More importantly, taxpayers over 65 years cannot file Form 1040-EZ anymore.
Here is what you miss in this list of types of income: social security retirement benefits and qualified pension or annuity income. Form 1040-EZ does not support this type of income. Most retired taxpayers do not earn much in salaries, wages, and gratuities and do not receive scholarships.
Many older people have been forced to file the much more complicated form 1040 just because of the nature of their income and their retirement age.
The 1040-EZ module also limits total revenue to $100,000 and interest income to $1,500 per year. The 1040-SR does not set a limit for interest, dividends or capital gains, or overall income.
... And why is it not better
Unfortunately, some older Americans will remain marginalized and face a formidable 1040 taxable form. Those who are not aged 65 and who have a pension, income, or other retirement income cannot use Form 1040-SR because of age factor; and since Form 1040-EZ does not include social security income and pensions, they cannot even use that.
These taxpayers have the option of completing Form 1040-A, but this statement does not allow for itemized deductions. It also limits the total income to $100,000, as well as 1040-EZ, even though it does not impose any limit on interest and does not close the door on social security and retirement benefit.
Taxpayers maybe 65 years of age at any time during the fiscal year, including December 31, to use 1040-SR. But the taxation form imposes other qualification restrictions than the rule of age.
Also, the tax form for seniors rejects the Itemized deductions. If you choose Form 1040-SR, it is necessary to claim the standard deduction for your filing status, but the Tax Cuts and Jobs Act almost doubled the standard deductions for all filing status. This shouldn't be a big problem. And people over 65 are also entitled to an additional standard deduction of $1,300.
The jury is still out
Only time will tell if the new 1040-SR is simpler or more complicated than easy, straightforward filing options. The language included in the BBA requires the IRS to make available the latest tax form for fiscal years from the date of issue.
The law was passed in 2018, which means the IRS will not have to fight to make the form available until the next fiscal year, which begins in 2019. But knowing that it will soon be an option that can help many seniors in the future determine in advance the best filing options and observe some tax planning.
Some tax professionals believe that seniors and IRS need all this time. Those who have seen the 1040-SR prototype fear that it will be no less complicated, and they will not be able to handle all the types of income that a retiree might have. Also, not all qualifying rules are in effect.
