Choose the Best Tax Form: When to Use Forms 1040, 1040A & 1040EZ

Jan 6, 2011
Carol Finch

How to Choose the Right Income Tax Return Form - Image by cobrasoft

The IRS provides three individual tax return forms. Unless you plan to use e-file, you need to choose between a 1040, 1040A and 1040EZ. Which form is best?

There are three individual income tax returns provided by the IRS. Each comes with its own rules that make choosing the right form important. What are the guidelines given for forms 1040, 1040A and 1040EZ and which one will be right for your circumstances?

Why are the IRS 1040 Forms Different?

IRS tax returns range from the basic to the more complex to suit different filing circumstances. Some taxpayers, for example, may only need the simplicity of the one-page 1040EZ; others may have more complicated finances and may need the longer and more detailed 1040A or 1040. If you do not meet all the conditions of a particular form, then you should not use it to file.

When to Use the 1040EZ Tax Form

The 1040EZ form is the shortest and simplest income tax return. According to the IRS, this form is most suited to taxpayers who:

Have taxable income below $100,000 from wages, salaries, tips, unemployment compensation, taxable scholarships and fellowship grants and Alaska Permanent Fund dividends.
File under Single or Married Filing Jointly status.
Are aged under 65 and are not blind.
Do not need to claim for any dependents.
Will not claim adjustments to income.
Will not claim the additional standard deduction.
Only claim earned income credit (EIC) or making work pay and did not get any advance EIC payments.
Have interest income that is $1,500 or less.
Do not owe household employment taxes on wages paid to a household employee.

Only tax table taxes can be reported on a 1040EZ. If you have other tax to report or do not meet the conditions above, then you need to move on to assess the 1040A.

When to Use a 1040A Income Tax Form

The 1040A is the middle form of the three. It allows for more flexibility and covers more situations than the 1040EZ. This option is most suited to taxpayers who:

Have taxable income below $100,000 from wages, salaries, tips, unemployment compensation, taxable social security and railroad retirement benefits, IRA distributions, pensions and annuities, interest, taxable scholarships and fellowship grants, capital gain distributions (but not an un-recaptured section 1250 gain, section 1202 gain or collectibles (28%) gain) and ordinary dividends (including Alaska Permanent Fund).
Will only list IRA and student loan interest deductions as adjustments to income.
Do not itemize deductions.
List their taxes only from the tax table, the alternative minimum tax, advance earned income credits (EIC), recapture of an education credit, form 8615 and/or the Qualified Dividends and Capital Gain Tax Worksheet.
Limit tax credits to child and dependent care expenses, credit for the elderly or disabled, child tax credit/additional child tax credit or education, retirement savings contributions, earned income and making work pay credits.
Will not make an alternative minimum tax adjustment based on stock acquisition from an incentive stock option.

Again, all of these requirements need to be met if you want to use 1040A. If you cannot meet them all, then you need to use a 1040.

When to Use Form 1040

Form 1040 is the most comprehensive option. Generally, if your income, deductions and credits don't fit the requirements of a 1040EZ or a 1040A, then this is the form to use. Taxpayers will find this the best fit if they:

Have taxable income of $100,000+.
Are employed by an employer that failed to withhold social security and Medicare taxes.
Itemize deductions.
Have uncollected employee tax (social security and Medicare) or group-term life insurance listed on their W-2.
Did not report any or all tips of $20+ in any month to their employer.
Were bona fide residents of Puerto Rico excluding income from Puerto Rican sources.
Owe excise tax on insider stock compensation from an expatriated corporation.
Have an amount shown in box 12 (and a code Z) in their W-2.
Received a qualified health savings account funding distribution from an IRA.
Need to add forms to returns to cover taxes, exclusions or transactions.
Are debtors in bankruptcy cases (filed after 0ctober 16, 2005).
Show a net disaster loss (from a federally declared disaster) even when taking the standard deduction into account.
Need to re-cpature the first-time homebuyer credit.
Were given tax or net disaster loss refunds or credits as part of the standard deduction.

Keep in mind, if you choose to use the IRS e-file system, that you don't need to work out which form to use at all. In this case, the electronic system chooses the right form for your needs automatically.

Why is it Important to Choose the Right Individual Income Tax Return Form?

Choosing between a 1040EZ, a 1040A and a 1040 is not just a question of speed or simplicity. You need to make sure that you meet all requirements of a form before you use it and that it suits your individual needs. You may, for example, pay less tax with a 1040 as it allows you greater scope in some areas (i.e. adjustments to income, itemized deductions and credits).

This year, the IRS has stopped mailing paper tax packages which has put the decision on which form to choose on to the taxpayer. The IRS website has full instructions on which form to use and links to electronic versions of forms that may be useful.

Those interested in learning more about tax preparation and filing may find the following articles interesting:

Sources: IRS ("Choose the Simplest Tax Form for Your Situation"); ("Publication 17 (2010) - Your Federal Income Tax, Which Form Should I Use?"). Accessed online 5th January, 2010.