Form 1040EZ, as the name suggests, is the easiest of the three forms you can use to file your annual tax return. This one-page form could allow you to do your taxes in a matter of minutes, but not everyone is allowed to use it. Here's what you need to know about form 1040EZ, who can use it, and who should use it.
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What is form 1040EZ?Form 1040EZ is a one-page tax form that's intended for the simplest tax situations, and it contains just a few short sections of information to fill out.
Income: In the six lines of this section, you'll list your income and subtract your allowed exemptions and deductions. Because of the "easy" nature of the form, you are only allowed to list income from wages, salaries, tips, taxable interest, unemployment compensation, and income from Alaska Permanent Fund dividends. If you have any other sources of income, such as dividends from stocks you own, you'll need to use one of the other two forms -- the 1040a or the 1040.
Payments, credits, and tax: This section lists all of the money you've already paid, usually in the form of withholding from your paycheck. This is also where you'll have the opportunity to claim the Earned Income Tax Credit -- the only credit allowed on form 1040EZ -- and where you'll declare whether or not you maintained health coverage throughout the year. Using the taxable income you calculated in the first section, you'll then use the IRS tax tables to determine your Federal income tax for the year.
Refund or amount due: Next, you'll compare your tax to the amount of payments and credits. If you've paid more than the amount of your tax, you are entitled to a refund. If your tax is more than you've paid, you'll have to pay the difference.
Who is allowed to use it?As I mentioned, not all taxpayers are allowed to use form 1040EZ. Specifically, in order to be eligible to use the form, you'll need to meet the following requirements:
- Taxable income of less than $100,000
- Interest income of $1,500 or less
- No dependents to claim
- File as single or married filing jointly
- You are not claiming any adjustments to your income
- You (and your spouse) are under 65 years old
Generally, taxpayers who use form 1040EZ are younger workers who don't have investments, real estate, or children. For example, teenagers and college students in their first part-time jobs are likely to use form 1040EZ.
You may be better off with one of the other formsEven if you meet the qualifications listed above, it doesn't automatically mean form 1040EZ is your best option. Specifically, if you're entitled to any additional tax credits or large deductions, you'll almost always be better off with one of the more complicated tax forms. Remember that the Earned Income Tax Credit is the only one you can claim on form 1040EZ.
A few common situations that could make form 1040EZ a bad choice include:
- You qualify for a tax credit under the Affordable Care Act for paying health insurance premiums.
- You're entitled to any education deductions or credits (i.e., you paid tuition or related expenses).
- You qualify for deductions that are more than the standard deduction amount.
The Foolish bottom lineEven if you're eligible to use form 1040EZ for your taxes, it may not be in your best interest to do so unless you have a truly simple tax situation. If you're entitled to any credits or deductions beyond what the 1040EZ allows, it can easily be worth the additional time to use one of the longer forms.
The article How to Use Form 1040EZ to File Your Taxes Fast originally appeared on Fool.com.
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