Changes to expect from the new postcard-sized 1040s

By Jeremy B. Harbor, CPA

One of the proposals under the Trump administration’s reform package last year was the idea of a “postcard” tax return. On June 29, the Treasury released their first draft of what this return might look like. According to Treasury Secretary Steven T. Mnuchin, "the new, postcard-size Form 1040 is designed to simplify and expedite filing tax returns, providing much-needed relief to hardworking taxpayers.”

The new form is set to replace the current form 1040, as well as the prior 1040A and 1040EZ. While called a “postcard,” the new two-page return is approximately the size of a half sheet of paper. And you will still mail the competed return in an envelope, unlike a postcard. This, of course, is for identity theft and privacy protection.

You'll note that the two-page draft form is smaller than the current two-page form – that's primarily because many line items have been consolidated and/or shifted to other forms and schedules. The new form 1040 has just 23 lines, as compared to the old form’s 79. While some of this reduction is due to the changes in tax laws, the majority of the reduction is due to items that might not be applicable to most taxpayers being moved to supporting schedules. The old tried and true schedules (B,C,D,E) are still there. What has been added are four new schedules, appropriately named Schedules 1 – 4. They have been added to detail data that has been consolidated on the new form. Those needing to will still report business, farm, rentals, or partnerships, depreciation, capital gains or losses – or other types of income on all the appropriate schedules. These schedules will now flow to Schedule 1, before being consolidated on the 1040.

What changes will this make to the upcoming tax season?

Overall, this will make it easier for people who have jobs, can use the standard deduction, and don’t have children who qualify for the child tax credit and earned income credit. This should cover a small minority of taxpayers, estimated at about 30% of current filers.

Critics argue that this redrafting of the form 1040 is a politically motivated public relations move. "Don't confuse creating a postcard with simplifying a tax filing, it's not the same thing at all," said Howard Gleckman, a senior fellow at the Tax Policy Center. These critics also cite that most taxpayers file electronically or use a paid preparer. This makes a paper “postcard” return unnecessary. For paid preparers, the tax software should not change significantly. If the extra schedules are necessary, preparers will still need to gather and input the appropriate information to complete the extra schedules or forms.

The IRS posted more than 50 drafts of revised forms and new schedules on its website in June. Many of the changes and new forms are tied to the Tax Cuts and Jobs Act. A full list of the 2018 forms can be found here.

Please consult your tax accountant about how the new postcard-sized 1040 might affect your filing.