7.4: FORMS 1040 EZ AND 1040A OBJECTIVES

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1 Section 7.4: FORMS 1040 EZ AND 1040A OBJECTIVES Complete form 1040EZ. Complete form 1040A. Key Terms Form 1040EZ Form 1040A Form 1040 dependent exemption itemize standard deduction Chapter 7: Income Taxes 1

2 How do taxpayers report their income to the government? Recall: Form W-2 is a yearly accounting of your tax withholdings given from your employer. If you work more than one job during a tax year, you will receive a W-2 form from each employer. When you receive your W-2 form(s), you need to determine your actual tax for the past year, based on your earnings and your deductions. You compare the tax you must pay to the amount your employer withheld. You will either owe more money or receive a refund. How do taxpayers report their income to the government? Three basic Internal Revenue Service tax returns 1. Form 1040EZ Example of a Short Form (Section 7.4) 2. Form 1040A Example of a Short Form (Section 7.4) 3. Form 1040 Example of a Long Form (Section 7.5) Depending upon the form used to report income and taxes, you must also supply information about family members that you support financially, called dependents. You receive an exemption for each of your dependents, which lowers the amount of your taxable income. You can also claim yourself as an exemption. Chapter 7: Income Taxes 2

3 Form 1040EZ It is important to select the correct short form based upon the requirements outlined by the IRS. Here are some of the major requirements to file form 1040EZ: Filing status must be single or married filing jointly only No dependents, other than yourself and your spouse, to claim Taxable income is less than $100,000 Income is only from wages, salaries, tips, taxable scholarships, fellowship grants, unemployment compensation or Alaska Permanent Fund dividends Taxable interest is not over $1,500 Example 1 Joey is filling out his 1040EZ form. His employer withheld $12,907 in federal taxes. He has calculated that he owes $13,952. Does he get a refund or owe money? In either case, what is the amount? Chapter 7: Income Taxes 3

4 Example 2 Elizabeth Allison is a food editor for a magazine. She has received a W 2 form from her employer shown below. She also earned $956 in bank interest. Complete a Form 1040EZ to determine the amount of refund or amount owed. *Note: When filling out tax forms, round all values to nearest whole number. Form 1040A Here are some of the major requirements to file form 1040A: Taxable income is less than $100,000 Income is only from wages, salaries, tips, taxable scholarships, fellowship grants, unemployment compensation or Alaska Permanent Fund dividends Deductions are not itemized (more to follow in section 7.5) Only adjustments to income are IRA (retirement) deduction, student loan interest deduction, educator expenses deduction, tuition and fees deduction Limited credits to income adjustments Chapter 7: Income Taxes 4

5 Form 1040A Standard deduction is an allowable reduction that is based on the filing status and reduces a taxpayers taxable income. These amounts are set by the government and tend to change from year. For example, in 2008, the standard deduction for a married couple filing jointly was $10,900 and $12,600 in 2015 and The table below shows the deductions for tax year 2017: Example 3 In 2016, Phoebe and Mike had a combined income from salaries of $97,980. They received 1099 forms for $923 in interest from their bank and $1,300 in stock dividends. Mike had a total of $2,448 in student loan interest. If Phoebe and Mike filed their taxes as married jointly, determine if they will receive a tax refund or owe more in taxes by completing a Form 1040A. How much is the refund/amount owed? Chapter 7: Income Taxes 5

6 Example 4 Kenya and Robin Omar are married with one child. Their W 2 forms are shown below. They also earned $987 in bank interest and $1,200 in stock dividends. They are also eligible for a $1,000 credit towards their taxes for child care expenses Complete a Form 1040A to determine the amount of refund or amount owed. Chapter 7: Income Taxes 6

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