One of the many goals of the 2017 Tax Reform was to simplify individual income taxes. Itemized deductions have always been viewed as adding complexity to a tax return. However, the latest Tax Reform has increased the standard deduction, resulting in fewer people needing to take time to itemize their deductions. Likewise, a higher Alternative Minimum Tax (AMT) exemption eliminates the need for people to compute their income tax under both the regular and AMT tax rules.

The IRS and Treasury Department released a potential Form 1040 individual income tax return that is the size of a large postcard. Did Tax Reform truly eliminate so much complexity that the only form an individual will need for their return is the size of a postcard? Before people rush out to buy postage stamps, we may need to delve deeper into this postcard 1040 for some further information.

Just the Basics

While Tax Reform did simplify some of the reporting requirements, it did not eliminate them altogether. Likewise, the postcard 1040 does not remove any of the lines in the traditional 1040; it instead moves these lines to new supporting schedules. It’s important to note that these new supporting schedules are not part of the postcard 1040, but will be supplemental to the down the line. The number of additional supporting schedules you will need to complete will become dependent on how many deductions, credits, and surtaxes you pay.

What’s on the Postcard?

The front of the postcard 1040 (shown below) has your essential demographic information – name, social security number, address, and dependent information. Since Tax Reform eliminated the personal exemption, the dependent information is used for things such as child tax credit and dependent care credit.

The back of the postcard 1040 (see below) contains income, deduction, and withholding information. For taxpayers with only W-2 wage income and related withholdings, and perhaps a little bank interest or dividends, the back of the postcard may suffice.

What’s Not on the Postcard?

While the front and back of the postcard may seem to cover some of the most critical tax information from your return, it is noteworthy to highlight what is not on the postcard—and thus may require new supporting schedules. Some standard information which will require these new supporting attachments are:

  • Schedule 1 – This new form details other sources of income such as taxable state refunds, business income, capital gains/losses, rental income, partnership income, and farm income. This schedule also includes adjustments to income such as health savings account deduction, the deductible part of self-employment tax, self-employed retirement, and health insurance deductions, and student loan interest deduction.
  • Schedule 2 – The schedule will detail additional taxes that may be owed such as the alternative minimum tax or repayment of the excess advance premium credit for those individuals receiving lower premiums from the health care exchange.
  • Schedule 3 – This new statement will contain aggregated nonrefundable credits like the foreign tax credit, dependent care credit, residential energy credit, and general business credit.
  • Schedule 4 – This new schedule summarizes any other additional taxes that are not already included on the postcard itself or Schedule 2. Some examples of these other taxes are the self-employment tax, household employee tax, additional Medicare surtax for earned income, as well as the net investment income tax.
  • Schedule 5 – Information on tax payments and certain other credits will be aggregated on this schedule. Any estimated tax payments made during the year, any amount paid with an extension, or any excess FICA tax withheld will be included on this form.
  • Schedule 6 – This form will be used for any taxpayer needing to disclose a foreign address or wanting to designate a third party to discuss their return with the IRS.

What to Include and Where?

The thought of completing a postcard to satisfy your tax filing obligation sounds like a great idea. However, as the list of information required on the six supporting schedules points out, many people will have to prepare more forms to fully satisfy their tax filing needs. Additionally, some people who had been familiar with where to report information on the “old” 1040 forms may need assistance on what new schedules and forms are required under a new postcard regime. Contact CRI to let us take that burden off your shoulders; we’re here to help you understand the various new tax schedules that may soon be implemented.