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New tax forms could speed up filings for retirees

This article was originally published on Investopedia.

Clients over the age of 65 will be able to choose a new simplified tax form when filing taxes in 2020 — due to a provision tucked away inside the two-year budget agreement passed by Congress in February.

The new form will be designed to be “as similar as practicable” to Form 1040EZ, which is the shortest federal income tax form that allows for reporting income from wages, salaries and tips. While the Form 1040EZ is available to any taxpayer under the age of 65, the 1040SR applicants must be 65 or older by Dec. 31, 2019.

“The form [1040SR] shall be available without regard to the amount of any item of taxable income or the total amount of taxable income for the taxable year,” according to the newly passed budget.

The new form allows for several types of income in addition to those allowed by 1040EZ. Specifically, 1040SR includes Social Security benefits, and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.

Clients may also include unlimited interest and dividends, as well as capital gains and losses.

Unlike 1040EZ — which limits interest income to $1,500 and total income to $100,000 or less — the new senior form has no limit on the amount of your total income for a given taxable year. Being retired isn’t necessary, either. Clients still working at age 65 can qualify to file 1040SR, while early retirees (younger than 65) cannot.

The senior form not only simplifies tax-filing requirements for seniors, but it also fills an important gap for clients who are not permitted to use the standard Form 1040EZ. Remember, clients who fill out Form 1040SR must take the standard deduction.

That said — the legislation isn’t perfect.

For retiree clients under the age of 65 whose income sources include Social Security, pensions and investment income, both the 1040SR and the 1040EZ are not suitable, leaving the 1040A as the next best option.

Nevertheless, the birth of 1040SR is a big step in the right direction when it comes to the simplification of tax-filing requirements.