Finally, the Bipartisan Budget Act of 2018 took a firm step on cutting seniors a bit of a break at tax time by simplifying tax filing for individuals aged 65 and older. They now have Form 1040-SR after many years.
In several ways, it’s said to be similar to the 1040-EZ and much easier to negotiate than Form 1040. As part of the Seniors Tax Reconciliation Act, the tax form was first proposed in 2013 and was supported by the AARP, the National Taxpayers Union, and the Association of Mature Americans. The senate however never approved it at that time.
When the Bipartisan Budget Act was signed into law on February 9, 2018, by President Donald Trump, the Internal Revenue Service finally created and published Form 1040-SR as required by the BBA.
Many older Americans couldn’t meet the requirements for filing Form 1040-EZ so they were previously forced to file the longer, more complicated Form 1040 which takes about twice as long to complete.
Those with income deriving from wages, salaries, tips, unemployment compensation, taxable scholarships, and fellowship grants are the only ones who can use Form 1040-EZ. Dividend income, on the other hand, is limited to Alaska Permanent Fund payments. Taxpayers age 65 and older are not permitted to file the 1040-EZ as well.
You probably noticed by now, Social Security retirement benefits and income from qualified retirement plans or annuities are missing from the list of the type of income we gave above. They are not accommodated in the Form 1040-EZ. Taxpayers who longed been retired are no longer earning a lot when it comes to wages, salaries, or tips as well as not receiving scholarships. Because of the virtue of the nature of their retirement incomes and their ages, many seniors have no choice but to fill the complicated Form 1040.
The overall income is also limited in Form 1040-EZ to $100,000 while the interest income is limited to $1,500 annually. There is no limit of interest, dividends, or capital gains, and no cap for the overall income with Form 2040-SR.
Unfortunately, the formidable Form 1040 at tax time will still be faced by some older Americans. Seniors who can’t use Form 1040-SR because of the age requirement are those who are not yet 65 and who have Social Security income, pension income, and other forms of retirement income. Since Social Security and pension income is also not included in the Form 1040-EX, they can’t use it either.
Even though the option of filing Form 1040-A is still available for these taxpayers, itemized deductions aren’t allowed for this return. Just as the 1040-EZ does, total income is also capped at $100,000 although interest income has no limit imposed and the door doesn’t close on income from retirement benefits and Social Security.
To qualify for using the 1040-SR, taxpayers need to reach their 65th birthday during the tax year even until December 31. However, there are a few other qualifying restrictions imposed by the tax form in addition to the age rule.
Itemized deductions are also not available by this tax form for seniors. IF you choose Form 1040-SR, you must claim the standard deduction for your filing status. But thanks to the Tax Cuts and Jos Act, the standard deductions for all filing status have pretty much doubled so this shouldn’t be that difficult. An extra standard deduction of $1,300 is also given for seniors age 65 or older.
To qualify, filers do not have to be retired.
No one really knows yet whether the new Form 1040-SR is really easier or if it’s even more complicated. The IRS is obligated according to the language included in the BBA to make the new tax form available for taxpayers as soon as the enactment starts.
The IRS shouldn’t have to panic since the law was enacted in 2018 and they should be able to have it available until the next tax year beginning on January 1, 2019. But it is a huge help among seniors in determining their best filing options in advance. If you think you need help with tax planning, you might want to consult a tax professional to give you the best possible options and outcomes.
