DEFINITION of '1040A Form'

The 1040A Form is a simplified version of the 1040 form for individual income tax. To be eligible to use a 1040A form, an individual must fulfill certain requirements such as not itemizing deductions, not owning a business, and having a taxable income less than $100,000.

Unofficially known as the "short form".

BREAKING DOWN '1040A Form'

Most US tax payers use the IRS Form 1040 to file their income tax returns. The 1040 Form is a detailed form which gives taxpayers with complex investments, itemized deductions, multiple tax credits, and more than $100,000 annual income more opportunities to lower their tax liability. Since additional tax paperwork is usually required with the 1040 Form, individuals with simpler tax situations may opt to use the 1040A form instead.

Form 1040A is a simplified version of Form 1040. The two-page form allows taxpayers to report ordinary income, some deductions, and credits. Individuals that fall under any of the five status options – single, head of household, married filing separately, married filing jointly, or widowed – can file their tax returns using the 1040A. While the 1040A form is available to taxpayers of any age and filing status, not everyone qualifies to use this form. Tax filers who use the form must have earned less than $100,000 taxable income and did not exercise any incentive stock options (ISO) during the tax year. The income reported must be earned as a wage, salary, tip, capital gain, dividend, interest income, unemployment compensation, pension, annuity, taxable Social Security and railroad retirement benefit, taxable scholarship or grant, and Alaska Permanent Fund dividend. Any other form of income, such as business income, must be reported on the more complex form 1040.

Form 1040A also gives taxpayers the opportunity to claim several tax deductions to reduce their taxable income. However, the only deductions that can be claimed include student loan interest, post-secondary tuition and fees, classroom expenses, and IRA contributions. Taxpayers using Form 1040A cannot claim itemized deduction. This limitation means that if an individual qualifies for other deductions from sources such as charity donations or mortgage interest deductions, and the total itemized deductible amount is more than the standard deductions, it would not be advantageous to use 1040A.

Claiming tax credits can also be done using the 1040A form. Tax credits reduce the bottom line or total tax bill of a taxpayer. The credits that can be claimed using this form are the American Opportunity Tax Credit (AOTC), Lifetime Learning Credit (LLC), Earned Income Credit (EIC), child tax and additional child tax credit, child and dependent care credit, credits for the elderly or disabled, and retirement savings contribution credit.

Another variant of Form 1040 is Form 1040EZ which is even simpler and easier to fill out than Form 1040A. But with Form 1040EZ, the individual must file as either a single tax payer or married filing jointly. No deductions can be claimed and only the EIC tax credit can be claimed using 1040EZ. While the 1040A form can be slightly more complex compared to the 1040EZ form, it is still relatively simple in comparison to the 1040. Once an individual's financial situation becomes complicated with dependents, special deductions, and credits (such as those associated with post-secondary education tuition), most taxpayers will often need to switch from filing with the 1040EZ to the 1040A.

 

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