IRS Working on a New Form 1040 for 2019 Tax Season

As part of a larger effort to help taxpayers, the Internal Revenue Service plans to streamline the Form 1040 into a shorter, simpler form for the 2019 tax season.

The new 1040 – about half the size of the current version — would replace the current Form 1040 as well as the Form 1040A and the Form 1040EZ.  The IRS circulated a copy of the new form and will work with the tax community to finalize the streamlined Form 1040 over the summer.

This new approach will simplify the 1040 so that all 150 million taxpayers can use the same form. The new form consolidates the three versions of the 1040 into one simple form. At the same time, the IRS will still obtain the information from each taxpayer needed to determine their tax liability or refund.

The new Form 1040 uses a “building block” approach, in which the tax return is reduced to a simple form. That form can be supplemented with additional schedules if needed. Taxpayers with straightforward tax situations would only need to file this new 1040 with no additional schedules.

Since more than nine out of 10 taxpayers use software or a tax preparer, the IRS will be working with the tax community to prepare for the streamlined Form 1040. This will also help ensure a smooth transition for people familiar with software products and the interview process used to prepare tax returns.

Taxpayers who file on paper would use this new streamlined Form 1040 and supplement it with any needed schedules.

2018 Earned Income Credit

2018 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates

Earned Income and AGI Limits

The tax year 2018 Earned income and adjusted gross income (AGI) must each be less than:

If filing… Qualifying Children Claimed
Zero One Two Three or more
Single, Head of Household or Widowed $15,270 $40,320 $45,802 $49,194
Married Filing Jointly $20,950 $46,010 $51,492 $54,884

Investment Income Limit

Investment income must be $3,500 or less for the year.

Maximum Credit Amounts

The maximum amount of credit for Tax Year 2018 is:

  • $6,431 with three or more qualifying children
  • $5,716 with two qualifying children
  • $3,461 with one qualifying child
  • $519 with no qualifying children

For more information on whether a child qualifies you for EITC, see:

  • Qualifying Child Rules, or
  • Publication 596, Rules If You Have a Qualifying Child.

2018 IRS Tax Changes

Tax Reform Provisions that Affect Individuals

Personal Exemption Deduction Eliminated

Personal exemption deductions for yourself, your spouse, or your dependents have been eliminated beginning after December 31, 2017, and before January 1, 2026.

Standard Deduction Amount Increased

For 2018, those who are married and filing jointly will have an increased standard deduction of $24,000, up from the $13,000 it would have been under previous law.

Single taxpayers and those who are married, and file separately now have a $12,000 standard deduction, up from the $6,500 it would have been for this year prior to the reform.

For heads of households, the deduction will be $18,000, up from $9,550.ty

 Itemized Deductions

Deduction for personal casualty and theft losses suspended (unless incurred in federally-declared disaster area)

Limitations to the deduction for state and local taxes

Limitations to the deduction for home mortgage interest in certain cases

Eliminating most miscellaneous itemized deductions such as:

  • Deductions for employee business expenses
  • Tax preparation fees
  • Investment expenses, including investment management fees
  • Employment related educational expenses
  • Job search expenses
  • Hobby losses
  • Safe deposit box fees
  • Investment expenses from pass-through entities

Eliminated the limitation on itemized deductions for certain high-income taxpayers.

SALT – State and Local Income Tax

The deductibility of state and local tax payments for federal income tax purposes is now limited to $10,000 a calendar year.

A taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.

Moving Expenses No Longer Deductible

The deduction for moving expenses has been suspended for most taxpayers for tax years beginning after Dec. 31, 2017 through Jan. 1, 2026. This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order related to a permanent change of station.

Depreciation and Expensing

Some laws regarding depreciation deductions have changed. A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million.

Alimony

Tax Treatment of alimony and separate maintenance payments.

Top Income Tax Rate

A new 37 percent top rate will affect individuals with incomes of $500,000 and higher. The top rate kicks in for married taxpayers who file jointly at $600,000 and up.

The new tax law also includes changes to other tax brackets.Images

Estate Tax

The estate exemption doubles to $11.2 million per individual and $22.4 million per couple in 2018.

Mortgage Interest

The deduction for interest is capped at $750,000 for mortgage loan balances taken out after Dec. 15 of last year. The limit is still $1 million for mortgages that were established prior to Dec. 15, 2017.

Contribution Limits for Retirement Savings

Employees who participate in certain retirement plans ‒ 401(k), 403(b) and most 457 plans, and the Thrift Savings Plan – can now contribute as much as $18,500 this year, a $500 increase from the $18,000 limit for 2017.

Savings in IRAs

Savers who contribute to individual retirement accounts will have higher income ranges following cost-of-living adjustments. Note that the deduction phases out for individuals and their spouses who are covered by workplace retirement plans.

For single taxpayers, the limit will be $63,000 to $73,000.

For married couples, the phaseout range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don’t have a retirement plan but are married to someone who does, the phaseout has been raised to $189,000 to $199,000.

The phaseout was not adjusted for married individuals who file a separate return and who are covered by a workplace retirement plan. That range is $0 to $10,000.

Contributions to Roth IRAs

For individuals who are single or the heads of their households, the income phaseout has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000.

The phaseout was not adjusted for married individuals who file a separate return. That is $0 to $10,000.

2018 Child Tax Credit

Under the new Tax Cuts and Jobs Act (TCJA) the following child tax credit changes will take place in 2018:

  • The Child Tax Credit under 2018 tax reform is worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit).
  • The refundable portion of the credit is limited to $1,400. This amount will be adjusted for inflation after 2018.
  • The earned income threshold for the refundable credit is lowered to $2,500.
  • The beginning credit phaseout for the CTC increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new family tax credit.
  • The child must have a valid SSN to claim the nonrefundable and refundable credit.

Child Tax Credit Eligibility

The child you claim as your dependent has to meet six IRS tests:

  1. Age Test: The child you claim as your dependent must have been under age 17 (so, 16 or younger) at the end of the tax year.
  2. Relationship Test:  The child must be your daughter, son, foster child or adopted child. The child can also be a grandchild or a descendant of one of your siblings.
  3. Support Test: The child must not have provided more than half of their own “support,” meaning the money they use for living expenses.
  4. Dependent Test: The child must be claimed as your dependent on your federal income tax return.
  5. Citizenship Test: The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  6. Resident Test: The child must have lived with you for more than half of the tax year (with a few exceptions detailed on the Child Tax Credit worksheet).

In addition to these six tests, income is also an eligibility factor. As your modified adjusted gross income (MAGI) increases, the child tax credit begins to phase out. You’ll get $50 less in child tax credits for every $1,000 – or portion of $1,000 – that your modified AGI exceeds:

  • $75,000 if you’re filing as the head of your household, single or as a qualifying widow(er)
  • $110,000 if your filing status is married filing jointly
  • $55,000 if your filing status is married filing separately