When you file your federal income tax return, you'll use one of three IRS forms, the 1040, the 1040A or the 1040EZ. As the name implies, the 1040EZ is the simplest form, but in some circumstances you're better off using the 1040A. If you have certain kinds of income, you must use the longest of the three forms, the 1040.
When you first start filing an income tax return (a good thing, because it means you've got actual income!), you'll probably qualify to file the simplest and shortest form, the 1040EZ. The necessary qualifications are:
- Your taxable income must be under $100,000
- Your income must come solely from wages, scholarships, grants, unemployment compensation and interest (which must total less than $1,500)
- You cannot claim any itemized deductions
- You cannot claim dependents
- You must be under the age of 65
- You cannot have currently filed for bankruptcy
- You can't be blind
- You cannot have deducted taxes from a household employee's wages.
- You cannot have have taken a "premium tax credit" to lower your health insurance costs
Most of these categories are pretty straightforward, although a couple require some explanation. The reason you can't be either 65 or older or blind, for example, is because taxpayers in either of these categories qualify for an additional deduction and the whole point of the EZ version of the 1040 is that you can only take a "standard deduction" that requires no qualification other than taxable income. Once you've taken the standard deduction, you can't take additional deductions - it's either/or, not both.
Other disqualifying categories, such as deductions for taxes from a household employee's wages, are based on the requirement for taxpayers to give a detailed account or make an additional tax payment, both of which go beyond the reporting limits of the EZ form.What it boils down to is that when you file the EZ form, the only credit you can claim is the Earned Income Tax Credit.
When your tax situation goes beyond the limits of the EZ form, you'll need to file either the 1040A or the 1040, the longest of the three.
The 1040A isn't quite as easy to file as the 1040EZ, but it allows you to take a few more deductions and credits. You'll have to file the 1040A if you've earned certain kinds of income that the 1040EZ doesn't allow. Here are the basic requirements for filing the 1040A (some of which are the same requirements as for the 1040EZ:
- As with the 1040EZ, taxable income must be under $100,000
- As with the 1040EZ, your income must result from wages, unemployment compensation, scholarships, grants, interest and dividends, although with the 1040A dividends aren't limited to a maximum of $1,500.
- With the 1040A, you can also claim deductions for contributions to an Individual Retirement Account - an account that, within specified limits, you can contribute to without paying taxes on contributions until, many years later, you withdraw them in retirement.
- The 1040A also allows you to deduct for student loan interest payments and many education expenses, including most tuition and associated fee payments.
- With the 1040A you can also claim some tax credits that aren't allows with the 1040EZ, the most important of them being the tax credit for dependent children. You can also claim The American Opportunity Credit and the the Earned Income Credit.
In brief, the Earned Income Credit provides additional tax credit benefits for low income filers and the American Opportunity Credit allows additional tax credits for undergraduate students. Details of both credits are given in IRS documents accessible through the References section.
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The 1040A/1040 Decision
When you don't qualify for the 1040EZ form, you may be able to file the 1040A instead. That doesn't mean you should; in some instances you're better off going to the trouble of filling out the full 1040. One big difference between the full 1040 and the two shorter 1040 forms is that only the full 1040 allows you to itemize deductions. If you're paying a home mortgage, for example, you'll certainly want to use the full 1040, which allows you to deduct your interest payments. For a similar reason, if you have a home office, you'll want to use the full 1040 because it allows you to deduct expenses associated with your office.
In order to determine which of these two forms to use, you'll need to consider which deductions and tax credits available in the 1040 form you may be entitled to as well as the income types that require you to file the long-form 1040.
The Long-Form 1040 Income Requirements
If you're self-employed and earned at least $400, you must file the 1040. The same requirement applies if you're in a business partnership or a shareholder in an S corporation. Employees who receive tips must also file a 1040. If you're receiving dividends from an insurance policy and the total of those dividends is greater than the premiums you paid, you'll also need to declare these dividends on the long-form 1040. The same requirement applies if you have income from either a domestic or foreign trust.
Other situations that require filing the 1040 are:
- Your taxable income is $100,000 or more
- You made estimated tax payments or have an overpayment from a prior year you are applying to the current tax year
- Your sold property, including equities such as stocks and bonds
- You are claiming income adjustments for tuition, moving expenses or health savings account
- Your employer gave you an advance Earned Income Tax Credit payment
- You have one or more W-2s that show tips or group term life insurance payments
- You have income earned from a 409A non-qualified deferred compensation plan
- You own an excise tax on insider stock compensation from an expatriated corporation
- You have foreign income and/or paid foreign taxes or are claiming tax treaty benefits
- You owe taxes because of the alternative minimum tax.
If none of the above conditions are familiar, it's almost certain that you're not required to file a 1040 and can use the 1040A or 1040EZ instead. If you're in doubt, however, rather than try to plough through the IRS's written explanations of these requirements (which, nevertheless, are included in the References), consider getting some advice free of charge from the IRS itself at the local IRS field office. You can locate it by googling "IRS field office [your city or county]." Another excellent organization that provides free tax advice to any taxpayer with an income of no more than $53,000 is The Volunteer Income Tax Assistance Program (VITA). Phone 1-800-906-9887 for the location of the nearest VITA office.
Other 1040 Forms
If you're a non-resident alien with U.S. income, you'll need to use one of two related 1040 forms, either Form 1040NR or Form 1040NR.
"Non-resident" aliens are individuals who are not U.S. citizens and who do not meet the "substantial presence test" that officially confirms U.S. residency. The details of non-resident alien status are beyond the scope of this article, but are explained in the IRS document covering the subject and available in the References. Note that if you're a non-resident alien conducting business in the U.S., you'll need to file one of these forms even in years when your business has no income or are otherwise exempt from taxes according :to the terms of an existing treaty between your country and the U.S.
- IRS: American Opportunity Tax Credit
- IRS: Earned Income Tax Credit
- IRS: About Form 1040-EZ, Income Tax Return for Single and Joint Filers With No Dependents
- IRS US Taxpayer Center: What Is Form 1040A?
- IRS: What Is Tax Form 1040?
- IRS: Find a Location for Free Tax Help
- IRS: Determining Alien Tax Status
- IRS: Understanding the Different Types of Individual Income Tax Returns