The 1040A: The Initial Tax Liability

Page one of the form 1040A determines your Filing Status and any Exemptions and Dependents you can claim. It also lists your sources of Income for the tax year, and qualifies you for any of the (4) Adjustments to your Income. Line 21 then calculates your Adjusted Gross Income value. The first (5) blog posts related to the form 1040A explained page one and how you arrive at your Adjusted Gross Income value on line 21.

Page two of the form 1040A carries that Adjusted Gross Income value from page one to line 22. Your Standard Deduction and the Personal and Dependent Exemptions are then calculated on lines 24 and 26 respectively – as explained in the (2) previous blog posts about these two deductions.

Taxable Income is the next task for the 1040A form to calculate. The following formula is used to calculate this value:

  • Begin with the Adjusted Gross Income on line 22
  • Subtract your Standard Deduction value, shown on line 24, from the Adjusted Gross Income value on line 22. That result goes on line 25.
  • Subtract your total Exemptions value shown on line 26, from line 25, to generate your resulting Taxable Income value shown on line 27.

This line 27 Taxable Income value, is used to determine your Initial Tax Liability listed on line 28. The Income Tax Tables used for the form 1040A can be seen by clicking this link form 1040A-Tax Tables. You look up your taxable income value in the table, listed under your Filing Status. Then you can see the Income Tax liability, you have for that Taxable Income.

See the example from the Tax Tables at the left, for a Single taxpayer, who has a Taxable Income of $75,535. Their Income Tax Liability would be $14,653. Their Taxable Income is between $75,500 and $75,550 in the table.

Fortunately, all tax software automatically calculates the tax liability for any taxpayer.

You can see for example, the same Taxable Income for a Married Filing Jointly couple would only have a tax liability of $10,424. The Tax Tables are calibrated for the (5) Filing Status categories.

If you listed Qualified Dividends or Capital Gain Distributions in your Income categories on page one of the 1040A form, the IRS uses a special tax worksheet to calculate your Initial Tax Liability – that would be shown on line 28. This is because the IRS taxes these two types of investment income using the lower Capital Gains Tax Rates. This worksheet is built into all tax software, and automatically calculates the correct tax liability for your situation – reduced by the lower Capital Gain tax rates. Click this link IRS Qualified Dividends and Capital Gain Tax Worksheet.

Your Initial Tax Liability, from the above Tax Tables, is listed on line 28 of the form 1040A. Notice, though, that your Total Tax liability value is not determined until line 39 on the form 1040A. This is because there are (5) Tax Credits available to you, that can possibly reduce your Initial Tax Liability to zero. There are also (2) additional taxes related to the Affordable Care Act – that could increase your tax liability. These Credits and Taxes are calculated and displayed on those lines 29 through lines 38. We will discuss these in the next several blog posts.

Line 29 is a tax, or repayment, of any excess health care Advance Premium Tax Credits you might have received from the Marketplace – to help you pay your monthly insurance premium. If you received too much of the Advance Premium Tax Credit, for the tax year, you have to give back, or repay some of the credit. The next blog will explain how to calculate this line 29 value.

Click the link below for the next Blog post that explains the Excess Advance Premium Tax Credit Repayment tax on line 29 of the form 1040A. This next blog post also explains other Affordable Care Act tax issues that would be reported on your form 1040A.

The 1040A: Affordable Care Act tax issues

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Legal Disclaimer: Nothing written or expressed in this Blog shall be construed as legal, accounting, or tax advice. This Blog is for informational purposes only, to inform Individuals about the IRS tax forms required to file an individual tax return, and the instructions that accompany such IRS tax forms.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any tax transaction or filing any tax form.

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