IRS Form 1040EZ: What You Need to Know

Nov 20, 2023 By Susan Kelly

Form 1040EZ, a simplified version of the standard 1040 form, was designed for individuals with straightforward tax situations. It stood out for its minimalism and simplicity, 20% the length of the 1040 form.

These forms were for people under 65, without dependents, and earning under $100,000. Its eligibility criteria were simple: wages, salaries, tips, taxable scholarships or fellowships, unemployment benefits, and interest income under $1,500.

Besides the Earned Income Tax Credit, Form 1040EZ offered few tax credits and deductions. It didn't allow itemized deductions, making it unsuitable for complex tax returns. The simplicity of Form 1040EZ made it a practical choice for those with basic tax filing requirements, streamlining the tax return process significantly.

Form 1040EZ Eligibility

You must meet specific requirements to file Form 1040EZ for your tax return. First, your taxable income should be under $100,000. You cannot claim dependents and must have at least $1,500 in interest income. Whether the 1040 form is suitable for you depends on these rules.

More conditions apply. If you file jointly, you and your spouse must be under 65 by the end of the tax year. You cannot be legally blind now. You can't deduct student loan interest, educator costs, tuition fees, or itemized deductions on the 1040EZ.

If you've earned interest, you shouldn't file Schedule B. You shouldn't have specific amounts in Form 1099-INT boxes 11, 12, or 13 or Form 1099-OID boxes 6 and 10. Additionally, you can't have received interest income as a nominee.

Tax credits are another area with restrictions. You can't claim credits for retirement savings, health coverage, or education with Form 1040EZ. You're not eligible if you received any advance earned income credit (EIC), but you can still claim the EIC when you file.

Finally, this form cannot be used in any Chapter 11 bankruptcy suit initiated following 16 October, the year 2005. No one may utilize Form 1040EZ if they have received premium tax credit advance payments for Marketplace health plans purchased for themselves, their spouse, or any of their dependents.

Limits of the Form 1040EZ

Income and Type Restrictions

Form 1040EZ was designed for taxpayers with specific income types, primarily wages, salaries, tips, taxable scholarships, and fellowship grants. However, this design significantly limited its applicability.

Individuals receiving income from other sources, such as foreign earnings, could not use Form 1040EZ. This restriction effectively excluded many taxpayers, especially those with diverse or international income sources.

The form's eligibility criteria, focusing narrowly on conventional income types, did not align with the financial realities of many taxpayers, underscoring the need for a more inclusive and versatile tax form.

Exclusion of Itemized and Other Deductions

The inability of Form 1040EZ to accommodate itemized deductions was a notable limitation. Users couldn't deduct expenses like student loan interest or IRA contributions, potentially missing out on significant tax savings.

This restriction particularly impacted individuals with substantial education-related expenses or those actively contributing to retirement savings.

The form did not include provisions for reporting health coverage, an essential aspect of modern tax filings. This exclusion necessitated an additional reporting step for 1040EZ users, complicating what was intended to be a straightforward

The Method to Fill Out a 1040EZ Form

The 1040EZ Form offers a streamlined approach to filing your tax return, especially for those with simpler financial backgrounds. This single-page form emphasizes ease and efficiency.

Key elements of the 1040EZ include personal information, income reporting, and tax calculation. The form is applicable for tax returns from 2017 or earlier, aligning with basic tax filing requirements.

Reporting Your Income

When filling out the 1040EZ, the first step involves reporting your income. This is done sequentially:

  • Line 1: Here, you report the income from your Form W-2. This includes wages, salaries, and tips. It's important to attach your W-2 form to the 1040EZ.
  • Line 2: This line is for reporting taxable interest. It's crucial to remember that if your taxable interest exceeds $1,500, the 1040EZ form is not applicable.
  • Line 3: This section is for reporting any unemployment benefits or dividends from the Alaska Permanent Fund.
  • Line 4: Calculate your Adjusted Gross Income (AGI) by adding the figures from Lines 1, 2, and 3.

Determining Dependency and Taxable Income

  • Line 5: Here, you indicate if someone can claim you or your spouse (in case of a joint return) as a dependent. This involves checking the relevant box and using the worksheet on the back of the form for calculations.
  • Line 6: This is where you calculate your taxable income. Subtract Line 5 from Line 4. If Line 5 is more than Line 4, you write 0.

Claiming Credit

This section of the 1040EZ Form involves understanding your credits and tax payments:

  • Line 7: Write down the federal income tax withheld as shown on your Form(s) W-2 and 1099.
  • Line 8a: You enter the amount eligible for the Earned Income Tax Credit (EITC) using the IRS’s chart for guidance.
  • Line 8b: This is specifically for military filers regarding nontaxable combat pay election. Including this pay might affect your EITC, so it’s advisable to calculate with and without this income.
  • Line 9: Add Lines 7 and 8a for your total payments and credits.
  • Line 10: Use Line 6 to find your tax in the tax table and enter the amount here.
  • Line 11: You should indicate full-year health coverage on Line 11. If not, enter an individual responsibility payment.
  • Line 12: Add lines 10 and 11 to Line 12—your total tax.

Handling Refunds and Amounts Owed

  • Line 13a: If your total payments and credits (Line 9) exceed your total tax (Line 12), you're eligible for a refund. Subtract Line 12 from Line 9 to find out the amount.
  • Line 14: If you owe taxes, subtract Line 9 from Line 12. This figure represents the amount due.

Comparing Form 1040 and Form 1040EZ

One significant difference between Form 1040 and 1040EZ was length and detail. Form 1040 had 80% more lines than 1040EZ. This was partly because Form 1040 allowed dependent information, which the 1040EZ did not. Both forms had sections for wages, salaries, tips, and taxable interest under $1,500, but the 1040EZ allowed unemployment compensation.

In 1982, the IRS introduced Form 1040EZ. We created this form to simplify tax returns for eligible taxpayers. It allowed filers to report wages, tips, salaries, taxable grants, scholarships, Alaska Permanent Fund, and unemployment compensation. Despite its simplicity, it served many taxpayers well.

Form 1040 had 16 income categories, unlike the 1040EZ. These included dividends, retirement account distributions, farming, and rental income. Filers could declare Social Security, alimony, and other income. Form 1040 outlined many deductions, from education to healthcare savings plan contributions.

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