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)
Copyright (c) 2018 Dow Jones & Company, Inc.