By Richard Rubin 

The IRS tax form 1040 is an icon in transition.

For years, taxpayers followed the instructions and carefully worked their way down the form, using pens to input information on the 1040 and mailing the paper to the government with a check or a request for a refund. Now, for most people, the 1040 is a summary of answers to questions posed by software or a paid preparer that doesn't command the same amount of direct attention from taxpayers.

The form's redesign, prompted by the 2017 tax legislation and Republican desires to deliver on a promise of postcard-sized filing, will be unveiled formally Friday as part of a White House celebration of the tax law. Because the 1040's role in the tax-filing process has changed, the real-world impact of the shortened new form may not be so drastic.

"It's vestigial," said Robert Kerr, executive vice president of the National Association of Enrolled Agents, tax experts licensed to practice before the Internal Revenue Service. "The 1040 is this sort of iconic, symbolic thing, but no one actually fills out a 1040 anymore, so there's a lot of energy being consumed by a new 1040 without the more fundamental question of: So what?"

The IRS says 89% of households filed electronically so far this year, including 72 million depending on tax professionals and 54 million filing electronically themselves. The IRS has encouraged the shift to digital filing, which the agency says is cheaper, faster and safer. The government isn't urging people to go back to paper and expects digital filing to keep growing, Treasury Secretary Steven Mnuchin said in an interview.

"We would hope that people don't get lured into the thought of filing a postcard," said Kathy Pickering, vice president of regulatory affairs and executive director of the Tax Institute at H&R Block Inc. "Sending that through the mail would be a step backward."

Still, the updated form, together with tax-law changes enacted in December, should reduce the compliance burden on millions of taxpayers, Mr. Mnuchin said.

Many households will take fewer steps to figure out their taxes under the new system. The number of households itemizing deductions would decrease from 46.5 million to 18 million, thanks to a larger standard deduction, according to the congressional Joint Committee on Taxation. The number of people paying the complex alternative minimum tax -- which requires calculating tax liability twice -- would drop from 5 million to about 200,000.

"Our objective is to make this simpler for taxpayers, whether they're doing it electronically or whether they're doing it on a physical form," Mr. Mnuchin said.

The new 1040 will replace the 1040, the 1040A and the 1040EZ. The form is smaller and fits on a two-sided piece of paper that is half the size of the previous version. It has 23 numbered lines, rather than 79.

Unlike draft versions that circulated this week, the new form retains the option for taxpayers to donate $3 to the presidential election campaign fund.

But in some ways filling out the form has become more complex. The most frequently used items stay on the main form while others get relegated to six schedules. Taxpayers with any items on those supplementary forms -- such as student-loan interest or education tax credits -- must complete those schedules, too. The new law added other complexities, particularly for so-called pass-through businesses filing through individual returns.

Still, the Treasury said most filers won't have to jump through many additional hoops. Among all filers, 65% will have to file only the new, simpler 1040 plus at most one additional schedule, the Treasury projects.

The IRS is working on instructions for completing the tax forms, expected by late summer or early fall. Getting the form done now was important, Mr. Mnuchin said, to allow the IRS, software providers and state authorities time to get ready for the filing season starting in January 2019.

A simpler tax code could hinder the tax-preparation business. H&R Block recently said it was closing 400 offices, or about 4% of its company-owned locations, as the tax law reduces some complexity and as people shift to digital tax preparation.

But many tax professionals say they don't expect many people to shift from seeking assistance to attempting self-preparation as a result of the new form. High-income households with complex finances and low-income households trying to qualify for tax credits still face challenges. Moreover, much of the underlying complexity of the tax code that drives people to accountants and computer programs hasn't changed.

"I haven't seen anything so far that makes it seem like it will be any easier to complete," said Karina Ron, director of the United Way's Center for Financial Stability in Miami, which assists more than 10,000 people with filing their taxes.

The 1040 is an important symbol and, creating a representation of fairness and simplicity was a reasonable goal, said tax historian Joe Thorndike.

"They should have just changed the EZ into a postcard and declared victory," he said. "The postcard aspiration is reasonable. But they should have set the bar lower and done a good job on a form that can be short rather than doing a really bad job on a form that shouldn't be this short."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

June 29, 2018 05:44 ET (09:44 GMT)

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