The new draft version of the 2018 Form 1040, obtained by Thomson Reuters Checkpoint from congressional staff, is markedly different from the 2017 version of the form. In addition to reflecting a number of changes made by the Tax Cuts and Jobs Act (TCJA), the draft form has been significantly reduced in size and contains far fewer lines than its predecessor. However, this reduction in length is countered by the fact that the draft form has six new accompanying schedules.
Identifying Information. The 2018 draft Form 1040 eliminates spaces from the 2017 version of the form where a taxpayer with a foreign address would specify the foreign country name, province, and postal code, and instead directs a taxpayer with a foreign address to attach a new Schedule 6, “Foreign Address and Third Party Designee,” and provide this information on that Schedule.
Dependents. On the 2018 draft Form 1040, in addition to the checkbox reflecting whether a dependent qualifies for the child tax credit, a second checkbox has been added for a taxpayer to reflect whether a dependent qualifies for the new “credit for other dependents.”
Adjusted Gross Income. The 2018 draft Form 1040 contains fewer entries than the 2017 Form 1040 for types of income received by the taxpayer. The omitted items were moved to new Schedule 1, “Additional Income and Adjustments to Income.” Specifically, the following income items have been moved to Schedule 1: taxable refunds, credits, or offsets of state and local income taxes; alimony received; business income or loss; capital gain or loss; other gains or losses; rental real estate, royalties, partnerships, S corporations, trusts, etc.; farm income or loss, unemployment compensation; and other income.
The 2018 draft Form 1040 does not reflect any adjustments to income that appear on the 2017 Form 1040 (e.g., educator expenses, health savings account deduction). Rather, all adjustments that remain in effect for 2018 were moved to the new Schedule 1. The moving expense deduction entry has also been modified to reflect that, under the TCJA, it is only available for members of the armed forces. The lines for the pre-2018 tuition and fees deduction and the pre-2018 domestic production activities deduction are shown on Schedule 1 as “Reserved.”
Deductions. Similar to the 2017 form, the 2018 draft Form 1040 contains a line where taxpayers indicate whether they are claiming the standard deduction or itemized deductions and provides the 2018 standard deduction amounts in the margin. It is widely expected that significantly more taxpayers will claim the standard deduction in 2018 as the standard deduction amounts were nearly doubled by the TCJA.
The 2018 draft Form 1040 also has a new line for the Qualified Business Income (QBI) deduction. Notably, the entry for exemptions has been removed from the draft form as this deduction was
suspended by the TCJA.
Tax. The 2018 draft Form 1040 contains fewer lines relevant to calculating a taxpayer’s total tax, instead moving the entries to a new Schedule 2, “Tax.” Specifically, the following tax items were moved to Schedule 2: tax on child’s unearned income (i.e., kiddie tax); tax on lump-sum distributions; other taxes; alternative minimum tax; and excess advance premium tax credit.
Nonrefundable Credits. The 2018 draft Form 1040 contains an entry for “child tax credit/credit for other dependents” and has moved the other items to new Schedule 3, “Nonrefundable Credits.” Specifically, the following credits were moved to Schedule 3: foreign tax credit; credit for child and dependent care expenses; education credits; retirement savings contribution credit; child tax credit and credit for other dependents; residential energy credit; general business credit; credit for prior year minimum tax; and other credits.
Observation: The child tax credit and credit for other dependents appears both on the 2018 draft Form 1040 as well as on Schedule 3. Presumably, this duplication will be resolved in a future draft.
Other Taxes. The lines for “other taxes” on the 2017 Form 1040 were moved to a new Schedule 4, “Other Taxes.” Specifically, the following “other taxes” were moved to Schedule 4: self-employment tax; social security and Medicare tax on tip income not reported to employer; uncollected social security and Medicare tax on wages; additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts; household employment taxes; repayment of first-time homebuyer credit; health care: individual responsibility; additional Medicare tax; and net investment income tax.
Schedule 4 also reflects a new item, “Section 965 net tax liability installment from Form 965-A.” This refers to the new Code Sec. 965 transition tax on the untaxed foreign earnings of certain “specified foreign corporations” as if those earnings had been repatriated to the U.S., which taxpayers can elect to pay in installments over an 8-year period.
Other Payments and Refundable Credits. The 2018 draft Form 1040 retains entries for the earned income tax credit, the additional child tax credit (denoted by the relevant Schedule, “Sch 8812”), and the American opportunity credit (denoted by the relevant Form, “Form 8863”). Other refundable credits appearing on the 2017 Form 1040 in the section titled “Payments” were moved to a new Schedule 5, “Other Payments and Refundable Credits.”Specifically, the following refundable credits were moved to Schedule 5: the net premium tax credit, the credit for federal tax on fuels; “amounts from Form 2439” (i.e., a shareholder’s credit for capital gains tax paid by a mutual fund); and the health coverage tax credit.
With respect to tax payments, the 2018 draft Form 1040 has a line for federal income tax withholdings. Other payment types reflected on the 2017 Form 1040-the amount paid with request for extension to file, and excess social security and tier 1 RRTA tax withheld-were moved to Schedule 5.
Third Party Designees. The 2018 draft Form 2018 eliminates the “Third Party Designee” section that had previously appeared on the 2017 Form 1040, where a taxpayer would specify whether another person is allowed to discuss the return with IRS and, if so, provide that person’s name, phone number, and personal identification number (PIN). The 2018 draft Form 2018 instead provides a checkbox where a taxpayer can check “3rd Party Designee.” Although the 2018 draft Form 2018 doesn’t provide a reference to Schedule 6 next to this checkbox, presumably the taxpayer would provide the designee information on that Schedule, which has entries for the designee’s name, phone number, and PIN similar to the 2017 Form 1040.