What is Form 1040EZ
Form 1040EZ is the shortened version of the Internal Revenue Service's (IRS) Form 1040. For taxpayers with basic tax situations, this condensed version offers a fast and easy way to file income taxes. To use the form, a taxpayer must have taxable income of less than $100,000, and less than $1,500 of interest income, and claim no dependents.
BREAKING DOWN Form 1040EZ
For most individuals, the 1040EZ is the first tax form they will ever complete. Consider a typical high-school student employed part-time. Provided they meet the income qualifications the 1040EZ will likely be the most straightforward and appropriate form to file.
Differences Between Forms 1040EZ and 1040
Form 1040 has 80% more lines than form 1040EZ. One significant difference is that Form 1040 has fields to include information about dependents, while 1040EZ does not allow individuals to claim dependents. Similar to the standard form, the EZ version has sections to record wages, salaries and tips, and taxable interest under $1,500. The filer may also include unemployment compensation payments.
However, in contrast, Form 1040 has at least 16 income categories. Categories available on the standard form include dividend payments, retirement account distributions, and farm and rental income. Form 1040 also allows for entry of Social Security benefits, alimony, and other forms or income.
Form 1040EZ has only a few credits or deductions available. Filers may include an earned income credit (EIC) and elect nontaxable combat pay. Alternately, Form 1040 has a long list of deductions, ranging from education costs to health care savings plan contributions.
Sometimes, it is unnecessary to change tax forms. A taxpayer's tax situation may warrant filing form 1040EZ for as long as they work. However, with time, most tax situations change as income, familial status, and investment portfolios change and grow. A taxpayer may transition to Form 1040A, a hybrid between the 1040EZ and Form 1040.
For example, if someone files Form 1040EZ one year but then has a child, they will likely file Form 1040 or 1040A the following year to claim their new child as a dependent. Similarly, if someone buys real estate, inherits or earns a significant amount of investment income, they will likely select one of the more complicated forms to report gains and losses to the IRS.
Taxpayers can access the Internal Revenue Service (IRS) website to learn more about which forms to file and to obtain forms and instructions.