The 1040A: Payments and (4) Refundable Credits

Payments and the (4) Refundable Credits are the last topics we need to discuss, to complete the 1040A form to the point you can determine if you get a refund, or if you owe a tax payment to the IRS.

As you recall from the previous blog post, your Total Tax liability is calculated on line 39 of the form 1040A. You can then offset this with any tax Payments you made during the year, and the positive refund values from any of the (4) Refundable Credits you might qualify for. If your Payments and Refundable Credits add up to be more than your Total Tax liability – you will get a refund. If your Total Tax liability is more than your Payments and Refundable Credits, you will owe a tax payment.


Payments shown on the form 1040A come from four possible sources:

  1. Taxes withheld from your paycheck, as shown on your W-2 form
  2. Taxes withheld from other income sources, shown on a 1099-form
    1. from Bank and Brokerage account income
    2. from IRA, Pension, Annuity and Social Security income
    3. from Unemployment Benefits income
  3. Taxes you paid quarterly to the IRS, as Estimated Payments
  4. Amount of your 2015 IRS tax refund, applied to 2016 tax payments

If you have a salary job, your company withholds Federal, Social Security, Medicare, State and Local taxes from each of your paychecks. They forward these to the IRS and the States, on your behalf, to be recorded in your tax accounts with the IRS and the States. This fulfills your obligation to pay your taxes as you earn the money – the “Pay As You Go” rule. This total Federal salary tax withholding value goes on line 40 of the form 1040A. The software calculates this from your W-2 entries.

If you instructed other payers of your income sources during the year to withhold IRS or State taxes – those appear on the 1099 forms, such as:

  • 1099-INT that reports the Interest you earned
  • 1099-DIV that reports the Dividends you earned
    • this 1099-DIV form could also show Capital Gain Distributions
  • 1099-Consolidated that reports Capital Gain Distributions and other brokerage income you earned from mutual funds, stock sales, etc.
  • 1099-G that reports Unemployment Benefits you received from your State
  • 1099-R that reports IRA, Pension and Annuity income you received
  • SSA-1099 that reports Social Security Benefits you received

The tax withholding values from any of these 1099 forms go on line 40 of the form 1040A. The software calculates this from your 1099 entries.

Some taxpayers prefer to just pay the IRS and the States directly on a quarterly basis, to cover their expected tax obligation from their various income sources. These are called Estimated Payments, and are mailed to the IRS and the States quarterly on April 15th, June 15th, September 15th and January 15th of each tax year. Estimated Payments can also be made electronically through the IRS and State’s websites. These have to be manually entered into the tax software, sorted by the quarterly payment dates and amounts sent for each quarterly payment. These are recorded on line 41 of the form 1040A.

Each year you can also instruct the IRS and/or the States to forward all or part of your tax refund – to be credited to your next year’s Estimated Payments total. Many taxpayers who regularly make quarterly Estimated Payments use this refund forwarding method. These are also recorded on line 41 of the form 1040A.


The (4) Refundable Credits can reduce your Total Tax liability to zero and then create a refund for you, with any remaining refundable credits they generate for you, after reducing your Total Tax liability to zero. They are:

  1. The Earned Income Credit (EIC) on line 42a
  2. The Additional Child Tax Credit on line 43
  3. The American Opportunity Credit on line 44
  4. The Net Premium Tax Credit on line 45

The Earned Income Credit (EIC) was discussed in (2) previous blog posts, as indicated by the two blue hyperlinks below. If you have not reviewed these two posts previously, please do so now, as they give a good introduction to the Earned Income Credit. Just scroll down into each post until you reach the discussion of the Earned Income Credit in the posts.

The 1040EZ: Payments, Credits and Tax

The 1040A: Who Can Use this Form?

Refer to Publication 596-Earned Income Credit (EIC) for the IRS publication that explains in detail the requirements and rules to qualify for the Earned Income Credit.

The Earned Income Credit requires that all people listed on the tax return must have valid Social Security Numbers that are eligible for work. This includes the taxpayer, parents, and any children listed on the tax return.

The main enhancement to the Earned Income Credit (EIC) on the form 1040A is you can qualify for more of the credit, based upon you having up to three Qualified Children listed as Dependents on your form 1040A. The maximum levels of the Earned Income Credit (EIC) you can receive are:

  • $506 if you have no Qualifying Children
  • $3,373 if you have (1) Qualifying Child listed as a Dependent
  • $5,572 if you have (2) Qualifying Children listed as a Dependent
  • $6,269 if you have (3) Qualifying Children listed as a Dependent

For each of the EIC Credit levels there is an ideal income level which gives you the maximum credit, based on your filing status. See those ideal income levels in the lists below, based on your Filing Status.

  • Single, Head of Household, Qualifying Widow(er) filing status
    • $506 credit with no Qualifying Child: between $6,600 and $8,300
    • $3,373 credit w/ (1) Qualifying Child: between $9,900 and $18,200
    • $5,572 credit w/  (2) Qualifying Children: between $13,900 and $18,200
    • $6,269 credit w/(3) Qualifying Children: between $13,900 and $18,200
  • Married Filing Jointly filing status
    • $506 credit with no Qualifying Child: between $6,600 and $13,850
    • $3,373 credit w/ (1) Qualifying Child: between $9,900 and $23,750
    • $5,572 credit w/ (2) Qualifying Children: between $13,900 and $23,750
    • $6,269 credit w/ (3) Qualifying Children: between $13,900 and $23,750
  • Married Filing Separately filing status
    • The Earned Income Credit is not allowed for Married Filing Separately

Above a certain income level, you cannot take the Earned Income Credit, based on your Filing Status and the number of Qualifying Children you list as Dependents on your tax return. Refer to the below table.

If you claim Qualified Children for your Earned Income Credit, you have to also submit the Schedule EIC which lists their information:

  • the Child’s name
  • the Child’s social security number
  • the Child’s year of birth
  • the Child’s status as a student and/or their disability status
  • the Child’s relationship to you
  • the number of months the Child lived with you during the current tax year

Click this hyperlink to see the Schedule EIC.

The Earned Income Credit has a massive amount of fraud, as some taxpayers list false income numbers, and claim children who are not their actual children. All paid tax preparers have to complete a Due Diligence checklist that is submitted to the IRS with your tax return. The paid tax preparer has the responsibility to verify that all Earned Income Claims are legitimate – or they are fined $550 per fraudulent EIC tax return. Click this link to see how extensive the questions are on this form, we as paid tax preparers have to complete Paid Preparer’s Due Diligence Checklist.

The Earned Income Credit is reported on line 42a of the form 1040A.


The Additional Child Tax Credit is the refundable portion of the line 35 $1,000 Child Tax Credit that was leftover after your line 37 Tax liability was reduced to zero. You could qualify for this $1,000 Child Tax Credit for each Qualified Child under the age of 17, listed as a dependent on your tax return. See this blog post The 1040A: the (5) Non-Refundable Tax Credits for the Child Tax Credit explanation.

You calculate the Additional Tax Credit on the IRS form 8812-Additional Child Tax Credit. For instance, maybe only $600 of the $1,000 Child Tax Credit was used to reduce your line 37 Tax liability to zero. That leaves $400 of credit still unused. You then could receive that extra $400 as a refundable refund credit – if you qualify for the Additional Child Tax Credit. The same income limitations apply for this Additional Child Tax Credit – as could limit your original Child Tax Credit. See the form 8812-Additional Child Tax Credit-Instructions.

The point to remember is for each Qualifying Child under the age of 17 listed on your tax return as a Dependent, you could qualify for this up to $1,000 per Child Tax Credit / Additional Child Tax Credit combination.

The taxpayer, parents, and children can still qualify for this Additional Child Tax Credit, if they only have ITIN’s (Individual Taxpayer Identification Numbers), not Social Security Numbers. See the IRS page for ITIN’s at IRS ITIN information.

They will not, though, qualify for the Earned Income Credit, as that credit requires that all people listed on the tax return must have valid Social Security Numbers that are eligible for work.

The Additional Child Tax Credit is reported on line 43 of the form 1040A.


The American Opportunity Credit (AOC) is the $1,000 refundable portion of the total $2,500 AOC credit you could qualify for as a deduction related to your Undergraduate education expenses. See this blog post The 1040A: the (5) Non-Refundable Tax Credits for the entire explanation of the American Opportunity education credit. The first $1,500 of the credit can be used to reduce your Total Tax liability to zero. The remaining $1,000 of the AOC credit can be refunded to you, even if your Total Tax liability has been reduced to zero.

The refundable, up to $1,000 American Opportunity Credit, is reported on line 44 of the form 1040A.


The Net Premium Tax Credit is a refund of the final Premium Tax Credit you qualified for, after taking into account your final income total, and if you received any of the Advance Premium Tax Credits towards your monthly health insurance premiums. This was explained in this blog post The 1040A: Affordable Care Act issues as part of the larger discussion of The Affordable Care Act and how it can affect your tax return each year.

The Net Premium Tax Credit is reported on line 45 of the form 1040A.


Line 46 on the form 1040A adds up the following Payments and Credits:

  • line 40: Federal Income Tax withheld from your W-2’s and 1099’s
  • line 41: 2016 Estimated Tax Payments and amount of 2015 refund applied
  • line 42a: Earned Income Credit
  • line 43: Additional Child Tax Credit
  • line 44: American Opportunity Credit
  • line 45: Net Premium Tax Credit

You will receive a refund if these line 46 Total Payments, are larger than your line 39 Total Tax liability. The refund is shown on line 47. You can have your refund directly deposited into your checking or savings account, or have the IRS mail you a refund check. You can also split the refund between several accounts using the form 8888 Allocation of Refund. For instance, some can go into your IRA account, some into Savings, and the rest into Checking. You can also use this form 8888 to instruct the IRS to purchase U.S. Savings Bonds with your refund. Line 49 lets you instruct the IRS how much of your refund, you would like to be credited to your next year’s Estimated Tax payment totals.

You will owe a tax payment, if your line 39 Total Tax liability is more than your line 46 Total Payments. The tax owed is shown on line 50. You can instruct the IRS to directly debit the tax owed from your checking or savings account, or you can mail them a check with a payment voucher. Line 51 calculates any Estimated Tax Penalty you owe, if your taxes owed are more than $1,000. This is included in the total line 50 tax owed value. The software automatically calculates this penalty for you.


Congratulations! You have completed the (11) blog post lessons that explained the form 1040A. Click the hyperlink below to begin the blog posts that will explain the form 1040 – the most complicated tax form.

The 1040: Who Can Use this Form?


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: the (5) Nonrefundable Tax Credits

The form 1040A adds five tax credits that can reduce your tax liability to zero, but not below zero. These reduce your line 30 Initial Tax Liability value, which is the sum of the line 28 Initial Tax, and any line 29 repayments of the Advance Premium Tax Credit you had to return.

These (5) credits are called “Nonrefundable” because they can only reduce your tax liability to zero. They cannot produce a refund for you, beyond their ability to reduce your tax liability to zero. They are:

  • Line 31 – Credit for Child and Dependent Care Expenses
  • Line 32 – Credit for the Elderly or Disabled
  • Line 33 – Education Credits
  • Line 34 – Retirement Savings Contribution Credit
  • Line 35 – Child Tax Credit

These types of tax credits have many rules, tests, and qualifications you must meet to take advantage of their tax saving features. The explanations below give a general overview of the credits – so you can determine if you might qualify for them. You can click the blue hyperlinks for each credit to see its associated IRS tax form and the instructions for the form.

A 100% full explanation of these sorts of credits – is beyond the scope of this Blog, as it is already a rather long Blog post in its current form. Feel free to post a comment, or email me at Mike@TaxesAreEasy.com, if you have questions or need further explanations of any of these (5) credits.


The Credit for Child and Dependent Care Expenses is a deduction for the costs you incurred for child care for your Qualifying Child under the age of 13. It also applies to care provided to a disabled spouse or other disabled dependent you support and claim on your tax return.

The child and/or dependent care services thus allowed you to work, or look for work – as you did not have to care for the child or disabled dependent during your work day. This work requirement is the key.

A married couple must have both spouses working, or looking for work, to qualify for this credit. Or one or both spouses can be a full-time student. The credit is not allowed if one spouse serves as the full-time homemaker and does not work outside the home. Both married spouses must have “earned income” from a job or self-employment to qualify for this credit, unless they can be qualified as a student.

A Married Filing Separately taxpayer cannot use this credit unless the following conditions apply. They would then be considered “Unmarried” and would qualify for this credit.

  1. You lived apart from your spouse the last six months of the tax year
  2. Your home was the qualifying child’s or disabled dependent’s main home for more than half of the year.
  3. You paid more than half of the costs of keeping up this home for the year

You can pay the Child Care or Dependent Care facility directly, or your employer might have given you money for the care, or the employer paid the facility directly. Employer dependent care benefits are shown in box 10 on your W-2. These are typically a non-taxable fringe benefit to you. Click this link form W-2 with Box 10 to see a W-2 with Box 10 highlighted.

You must use the IRS form 2441 to exclude those employer-provided child care or dependent care benefits from your salary income. Click the links IRS form 2441-Child and Dependent Care Expenses and form 2441-Instructions. The form 2441 is submitted to the IRS with your tax return, and list the one or more child and/or dependent care facilities you used. It lists your one or more children or disabled dependents who received the care, and the amounts spent on their behalf. It also lists the total amounts you paid these providers, and calculates your credit.

You can list up to $3,000 of qualified care expenses for each child or disabled dependent, and up to a total of $6,000 spent on two or more children or disabled dependents. Your credit of the expenses you incurred is then based on your line 22 Adjusted Gross Income (AGI), multiplied by a percentage associated with that AGI value, from the table shown below. The credit percentages range from 35% down to 20%.

This credit does not phase out based on income, so even taxpayers with their Adjusted Gross Income of over $43,000 can take the minimum credit of 20% of their child or dependent care expenses. For instance, if they could take advantage of the total $6,000 in expenses for two children, their 20% tax credit would still be $1,200 – which would reduce their tax liability by that $1,200 amount. This is one of the few tax credits that Congress did not impose an Income Cap upon.

As expected, all tax software will complete the calculations for you, and submit the properly completed form 2441 to the IRS on your behalf. The Credit for Child and Dependent Care Expenses is shown on line 31.


Credit for the Elderly or Disabled is a deduction for taxpayers over the age of 65, and for taxpayers who retired on permanent and total disability – and had taxable disability income. Schedule R is used to calculate the credit and prove to the IRS you passed the (2) main tests for the credit. See the links IRS form Schedule R and form Schedule R-Instructions.

The first test is the Income Limits for the credit. Your line 22 Adjusted Gross Income cannot be over the following amounts, for each of the filing status categories listed. If your income is above these limits, you cannot take the credit. You will notice the income levels are very low.

The second test is a limit on the amount of nontaxable payments you received from Social Security, and nontaxable pensions, annuities or disability income payments. These amounts are low also.

  • Single, Head of Household, Qualifying Widow(er)
    • Adjusted Gross Income of $17,500 or more disqualifies you
    • You received $5,000 or more of nontaxable Social Security Benefits, or other nontaxable pensions, annuities or disability income. This will disqualify you for the credit.
  • Married Filing Jointly (when only one spouse is eligible for the credit)
    • Adjusted Gross Income of $20,000 or more disqualifies you
    • You received $5,000 or more of nontaxable Social Security Benefits, or other nontaxable pensions, annuities or disability income. This will disqualify you for the credit.
  • Married Filing Jointly (when both spouses are eligible for the credit)
    • Adjusted Gross Income of $25,000 or more disqualifies you
    • You received $7,500 or more of nontaxable Social Security Benefits, or other nontaxable pensions, annuities or disability income. This will disqualify you for the credit.
  • Married Filing Separately (and you lived apart from your spouse all of the tax year)
    • Adjusted Gross Income of $12,500 or more disqualifies you
    • You received $3,750 or more of nontaxable Social Security Benefits, or other nontaxable pensions, annuities or disability income. This will disqualify you for the credit.

If your values are below the limits as described above, you will receive a 15% credit on the qualifying Social Security, pension or disability income you received. The tax software completes all the calculations for you, and submits the completed Schedule R with your tax return to the IRS.

This credit is seldom used, because the income levels are so low to qualify.  The Credit for the Elderly or Disabled is shown on line 32.


The Education Credits are the American Opportunity Credit, and the Lifetime Learning Credit. These qualify you for a tax credit, based on the amounts of Tuition, Fees, Books and Supplies you spent during the tax year for an education at a qualified education facility. Undergraduate expenses are reported for the American Opportunity Credit for the first four years of college. Graduate work and adult learning courses are reported for the Lifetime Learning Credit, for the rest of your life. Form 8863 is used to calculate these credits. See the links IRS form 8863-Education Credits and form 8863-Education Credits-Instructions.

Your school or education facility will issue you a 1098-T Tuition Statement form each year electronically or by mail. This will show the total of Tuition and Fees you paid that tax year for your education. Click this link form 1098-T for the form.

You can also use expenses for Books, Labs and Fees not shown on the 1098-T form. It is good practice to save these other receipts, in case the IRS audits you to prove these expenses that qualified you for the Education Credits.

The American Opportunity Credit can reduce your tax liability by up to $1,500, and produce a refundable tax credit of up to $1,000. You only need $4,000 in qualified education expenses to qualify for the maximum credit. You can take this credit for yourself, and any other dependent you claim on your tax return, that also is a qualifying student. This is a “per eligible student” tax credit. This means you can claim up to the full $2,500 credit for yourself, and also for your dependent students. Each can reduce your tax liability by the $1,500, and give you a refundable credit of $1,000 per qualified student – for yourself and/or your dependent students listed on your tax return. Each person can use their own $4,000 of qualified education expenses to qualify for the credit. There are income limits, that begin to phase out the credit over certain income levels, shown below.

  • Single, Head of Household, Qualifying Widow(er)
    • When your Modified Adjusted Gross Income reaches:
      • $80,000 – the credit begins to phaseout
    • When your Modified Adjusted Gross Income is above:
      • $90,000 – the credit is no longer allowed on your tax return
  • Married Filing Jointly
    • When your Modified Adjusted Gross Income reaches:
      • $160,000 – the credit begins to phaseout
    • When your Modified Adjusted Gross Income is above:
      • $180,000 – the credit is no longer allowed on your tax return
  • Married Filing Separately
    • No American Opportunity Credit is allowed

The Lifetime Learning Credit can reduce your tax liability by up to $2,000. This is a “per return” credit, which means $2,000 is the maximum credit you can claim for yourself or dependent students. It is a 20% credit for up to $10,000 of combined qualified education expenses for yourself and your dependent students. No part of the credit is refundable, meaning the entire $2,000 credit can only be used to reduce your Tax Liability to zero, but not below zero. The Lifetime Learning Credit is for education expenses you or your dependent incurred, for Graduate School and Adult Learning classes. There is no age limit on this credit, as any qualified education classes you take, for the rest of your adult life, can qualify. Even if you only take one qualified night course, you qualify for this credit.

There are income limits, that begin to phase out the credit over certain income levels, shown below.

  • Single, Head of Household, Qualifying Widow(er)
    • When your Modified Adjusted Gross Income reaches:
      • $55,000 – the credit begins to phaseout
    • When your Modified Adjusted Gross Income is above:
      • $65,000 – the credit is no longer allowed on your tax return
  • Married Filing Jointly
    • When your Modified Adjusted Gross Income reaches:
      • $111,000 – the credit begins to phaseout
    • When your Modified Adjusted Gross Income is above:
      • $131,000 – the credit is no longer allowed on your tax return
  • Married Filing Separately
    • No Lifetime Learning Credit is allowed

Click this link Table to compare Education Credits to see a table comparing the features and benefits of each of these (2) Education credits.

All tax software will optimize for you, which of the (1) Education Adjustment or (2) Education Credits will give you the best tax benefit.

  • Tuition and Fees Adjustment – 1040A page 1, line 19
  • American Opportunity Credit – 1040A page 2
    • line 33 (nonrefundable credit)
  • Lifetime Learning Credit – 1040A page 2
    • line 33 (nonrefundable credit) and
    • line 44 (refundable credit)

The Retirement Savings Contribution Credit is a tax credit available to you if you made contributions to a retirement plan during the tax year. $2,000 of those retirement contributions are used for the credit, which ranges from 10%, 20%, or 50% of that $2,000 level of contributions. The amount of the credit is based on your filing status and Adjusted Gross Income level from line 22 of the form 1040A. See the table below:

The IRS form 8880 is used to calculate this tax credit. See the following link for the form and instructions IRS form 8880-Savers Credit.

The income limitations for each filing status are:

  • Single, Qualifying Widow(er), Married Filing Separately
    • if the Adjusted Gross Income is over $30,750 – the credit is not allowed
  • Head of Household
    • if the Adjusted Gross Income is over $46,125 – the credit is not allowed
  • Married Filing Jointly
    • if the Adjusted Gross Income is over $61,500 – the credit is not allowed.

You cannot take advantage of this credit, if any of the following apply:

  • The person who made the retirement contribution is age 18 or under on December 31st of the tax year.
  • The person who made the retirement contribution is claimed as a dependent on another taxpayer’s tax return
  • The person who made the retirement contribution is a student

The tax software calculates the credit and submits the form 8880 with the tax return filed with the IRS. The Retirement Savings Contribution Credit is shown on line 34.


The Child Tax Credit is an up to $1,000 per child credit, for each Qualifying Child listed on your tax return as a dependent, and who also was under the age of 17 on December 31st of the tax year.

This $1,000 credit can be used to reduce your tax liability to zero, but not below zero. If all of the possible $1,000 Child Tax Credit is not used after your tax liability is reduced to zero – you might also qualify for the refundable Additional Child Tax Credit. This can refund the remaining amount of the initial Child Tax Credit – that was leftover after reducing your tax liability to zero. We will cover that in the next blog post that discusses the (4) refundable credits used on the form 1040A.

The IRS has (6) tests to make certain the Qualifying Child listed as a dependent on your tax return, also qualifies for the Child Tax Credit.

  1. Age: the child must be under the age of 17, on December 31st
  2. Relationship: they must be your Son, Daughter, Stepchild, Foster Child, Brother, Sister, Stepbrother, Stepsister – or a descendent of any of these, like a Grandchild, Niece, or Nephew. An Adopted Child also qualifies.
  3. Support: the child cannot provide over half of their support.
  4. Dependent: you must claim the child as a dependent on your tax return
  5. Citizenship: the child must be a U.S. Citizen, U.S. National, or U.S. Resident Alien with a Green Card, or per the substantial presence test.
  6. Residency: the child must have lived with you, for over half of the year. Temporary absences like school or hospital stays count.

The taxpayer, parents, and children can still qualify for this Child Tax Credit, if they only have ITIN’s (Individual Taxpayer Identification Numbers), not Social Security Numbers. See the IRS page for ITIN’s at IRS ITIN information.

They will not, though, qualify for the Earned Income Credit, as that credit requires that all people listed on the tax return must have valid Social Security Numbers that are eligible for work.

There are also income limitations above which the credit begins to phase out and eventually is reduced to zero credit.

  • Single, Head of Household, Qualifying Widow(er)
    • phaseout begins when Modified Adjusted Income is over $75,000
    • credit not allowed when income is $95,000 or over
  • Married Filing Jointly
    • phaseout begins when Modified Adjusted Income is over $110,000
    • credit not allowed when income is $130,000 or over
  • Married Filing Separately
    • phaseout begins when Modified Adjusted Income is over $55,000
    • credit not allowed when income is $75,000 or over

For every $1,000 of income above these thresholds, the Child Tax Credit is reduced by $50. So once your income is $20,000 over the threshold, you will no longer qualify for any of the credit.

See this link Child Tax Credit Worksheet for the worksheet that calculates the Child Tax Credit. See this link IRS Publication 972-Child Tax Credit for the IRS Publication 972 that explains the Child Tax Credit in full. There are no IRS instructions for this credit, as that is all covered in the IRS Publication 972. The IRS often issues publications instead of instructions, for a more in-depth and specific explanation of tax matters.

The Child Tax Credit is shown on line 35.


Calculation to determine your final Total Tax liability value:

Line 36 of the form 1040A adds any of the (5) nonrefundable credits you qualified for to result in your Total Credits value. This value is then subtracted from your line 30 Initial Tax Liability value, to determine if you still have any tax liability – or the credits reduced that to zero. This appears on line 37, but cannot be below zero.

Line 38 adds any Health Care Individual Responsibility penalty tax if you did not have health insurance coverage for the entire year. This was discussed in the blog posts about the form 1040EZ. See that blog post at The 1040EZ: Payments, Credits and Tax and scroll down for the explanation of this penalty tax, at the line 11 explanation.

Your Total Tax liability shown on line 39 of the form 1040A is then calculated – as it adds the line 37 and 38 values.


Click the link below for the next blog post that explains the Payments and (4) Refundable Credits on the form 1040A. This will be the last blog post in the series for the form 1040A – that will then determine if you get a refund or you owe tax.

The 1040A: Payments and (4) Refundable Credits


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: Affordable Care Act tax issues

The Affordable Care Act was passed in 2010 by the Congress and signed by President Obama on March 23rd, 2010. One of the features of the Affordable Care Act was to create insurance Marketplaces, where citizens could purchase health insurance and possibly qualify for tax credits to help pay the monthly premiums. Those tax credits are called Premium Tax Credits – as they help pay the monthly insurance premiums.

If your household income is at or below 400% of the Poverty Level – you could qualify for these Premium Tax Credits – when you enroll for Marketplace-provided health insurance each year during the open enrollment period – usually from November through January. Part of the enrollment process is you estimate what your total income will be for the upcoming tax year. Then the Marketplace calculates how much Premium Tax Credit you would be eligible for, when your new health insurance policy starts each January. You can choose to have the Premium Tax Credit paid directly to your insurance company each month, to reduce or eliminate the cost to you, of your monthly premiums. This is called the Advance Premium Tax Credit.

The health insurance Marketplace will mail you the form 1095-A by January 31st each year, which will show the amount of the Advance Premium Tax Credit you received during the tax year, that was forwarded to your health insurance company – towards payment of your monthly premiums. Click form 1095-A for the form.

You have to reconcile these Advance Premium Tax Credits on your tax return each year – to determine the exact amount you should have received – based on your final income amount for the tax year. This process compares the full-year amount of the Premium Tax Credit you were eligible for, with the amount of the Advance Premium Tax Credit that was actually forwarded to your insurance company to pay premiums.

If you overestimated the income you would make for the tax year, you could receive a larger than anticipated Premium Tax Credit as an additional refund on your tax return. That is because your income was less than you expected, so you would receive more Premium Tax Credits, to help pay for your insurance premiums, to compensate for your lower income for the year.

If you underestimated your total income for the year, you might have to give back, or repay, some of the Advance Premium Tax Credit you received during the tax year. This is because you made more money than you had anticipated, and therefore could have afforded to pay more of the monthly insurance premiums yourself – without the financial aid of the Advance Premium Tax Credit.

This calculation to see if the Advance Premium Tax Credit you received was appropriate to your final Premium Tax Credit – is called the reconciliation process. You must complete this process each year you receive any Advance Premium Tax Credits to help pay for your monthly health insurance premiums.

The IRS form 8962 – Premium Tax Credit (PTC) calculates this for you. It will analyze the insurance information from the Marketplace reported on the 1095-A, and compare that to your final, yearly Income for the tax year. Click form 8962 for the form, and the form 8962 Instructions.

If you qualify to receive even more of the Premium Tax Credit, because your final income was below what you estimated to the Marketplace upon enrollment, then that is refunded to you as the Net Premium Tax Credit, on line 45 of the form 1040A.

If the form 8962 calculates that you received too much of the Advance Premium Tax Credit during the year, because your final income was higher than what you estimated to the Marketplace upon enrollment, then you have to repay some or all of that credit. That is reported on line 29 of the form 1040A, as the Excess Advance Premium Tax Credit Repayment.

As you might expect by now after reading many of these blog posts, all the tax software will properly calculate this for you, based on the information on the 1095-A form from the Marketplace, and your final total income for the year. Your tax professional should also be able to help you with this. The 8962 form is submitted with your taxes when you e-file the return.

I believe it is useful for each taxpayer to understand the logic behind the potential tax credits they each could receive, to help pay for health insurance policies they purchase from the Marketplace.

People can disagree about the politics of the Affordable Care Act – but these Advance Premium Tax Credits – have helped to make health insurance more affordable for many, many citizens. The merits of the Affordable Care Act are for the Politicians to debate.

My job as an IRS Enrolled Agent – is to describe these tax matters with a clear explanation – so taxpayers can take advantage of the Credits if they legitimately and legally qualify for them.

Click the link below for the next Blog post that explains the (5) Nonrefundable Tax Credits of the form 1040A – that could reduce your Initial Tax Liability to zero, but not below zero.

The 1040A: the (5) Nonrefundable Tax Credits


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

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


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: The Personal and Dependent Exemptions

The Personal and Dependent Exemptions date all the way back to 1913 when the Income Tax first began. The intention was to give each taxpayer, spouse and their dependents a yearly deduction for a minimal subsistence – enough money for food, clothing, shelter, etc. Minimum subsistence at that time, is what is sometimes called the Poverty Level today. Click this link Exemption & Dividends from 1913 thru 2006 to see a table of the Personal and Dependent Exemption amounts from 1913 through 2006. This Personal and Dependent Exemption money would then not be subject to the Income Tax.

For the 2016 tax year, each Personal Exemption is worth $4,050. If you listed Dependents in line 6c on page one of the form 1040A, you also get a Dependent Exemption of $4,050 for each Dependent Child and/or Dependent Relative. Each spouse of a Married Filing Jointly couple is entitled to their own $4,050 Personal Exemption. The total Personal and Dependent Exemption amount is listed on line 26 of the form 1040A.


Later in 1944, the Standard Deduction was added, to further set aside money for personal expenditure deductions, that would not be subject to the Income Tax. This combination survives to this day. Each year taxpayers can take advantage of the Personal Exemption and Standard Deduction, to subtract from their income, as not subject to Taxes.

The IRS refers to this as the Filing Threshold – the combination of the Standard Deduction and Personal Exemption amounts for your Filing Status. If your total yearly income was not above this combined value – you are not required to file a Federal Income Tax return. All the States have their own Filing Threshold levels – that are often different from the Federal levels. For the 2016 tax year, the Federal Filing Thresholds were as shown below for each of the (5) Filing Status categories:

  • Single
    • $10,350 if under age 65
    • $11,900 if over age 65
  • Married Filing Jointly
    • $20,700 if both under age 65
    • $21,950 if one spouse over age 65
    • $23,200 if both spouses over age 65
  • Married Filing Separately
    • $4,050 if any age
  • Head of Household
    • $13,350 if under age 65
    • $14,900 if over age 65
  • Qualifying Widow(er) with dependent child
    • $16,650 if under age 65
    • $17,900 if over age 65

Even if a taxpayer is not required to file a Federal Income Tax return – because their total income for the year is below their Filing Threshold – many taxpayers will still file a tax return, to get back a refund of the Federal and State taxes withheld from their paychecks.

Click the link below for the next Blog post that explains how to calculate the Initial Tax Liability you have on the form 1040A.

The 1040A: The Initial Tax Liability


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: The Standard Deduction

The Standard Deduction was created in 1944 by Congress, to give every taxpayer a fair deduction for some of their living expenses, for your particular life situation. It let you deduct 10% from your Taxable Income. That lasted for 20-years, when in 1964 Congress changed the Standard Deduction to a fixed dollar amount. Then in the 1970’s, Congress started increasing the Standard Deduction each year for inflation – which was high in the 1970’s. That method survives through today, as the IRS almost every year increases the Standard Deduction by a small amount, to account for inflation. The Standard Deduction amounts for the 2016 tax year were:


  • Single:  $6,300
  • Married Filing Jointly:  $12,600
  • Married Filing Separately  $6,300
  • Head of Household  $9,300
  • Qualifying Widow(er)  $12,600

The Additional Standard Deduction: If a taxpayer is over the age of 65 on December 31st, and/or if they are blind, they receive an extra amount added to their normal Standard Deduction, for each qualification:

  • Single: $1,550 extra for age and/or blindness
  • Married Filing Jointly:  $1,250 extra for age and/or blindness, for each spouse who qualifies for an Additional Standard Deduction
  • Married Filing Separately:  $1,250 extra for age and/or blindness
  • Head of Household: $1,550 extra for age and/or blindness
  • Qualifying Widow(er): $1,250 extra for age and/or blindness

For example, a Single taxpayer of age 70, would receive the normal Standard Deduction of $6,300. They also would add an extra $1,550 to that as an Additional Standard Deduction – for a total of $7,850.

The Standard and Additional Deduction are listed as one total amount on line 24 of the form 1040A.


Click the link below for the next Blog post to learn about the Personal and Dependent Exemption deductions you can take for yourself, your spouse, and for any Dependents listed on your tax return – to further reduce your Taxable Income.

The 1040A: The Personal & Dependent Exemptions


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: (4) New Adjustment categories

Adjustments are deductions for expenses you incurred during the year, that qualify to be deducted from your Total Income. This is where the term “Adjusted Gross Income” comes from. Four Adjustment categories have been added to the form 1040A form you might qualify for.


Educator Expenses is an up to $250 Adjustment deduction for teachers, defined by the IRS as an Eligible Educator. It is a deduction for unreimbursed ordinary and necessary expenses you paid in the tax year, related to your educator duties. An Eligible Educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide – who worked in a school for at least 900 hours during the school year. That works out to be about 23 weeks based on a 40-hr/week job as an Educator. If both spouses are Educators and use the Married Filing Jointly filing status, both can take the $250 deduction for a total of $500 for this Adjustment.  The expenses are:

  • The cost of professional development courses you have taken related to the curriculum you teach or to the students you teach.
  • In connection with books, supplies, equipment (including computer equipment, software, and services), and other materials purchased to be used in your classroom – that you were not reimbursed for.

The Educator Expenses deduction is listed on line 16 of the form 1040A.


IRA Deduction is an up to $5,500 per year Adjustment deduction you can take if you contributed that sum to a traditional IRA (Individual Retirement Arrangement). That deduction value rises to $6,500 per year if you are age 50 or older. Once you turn age 70 1/2, you can no longer contribute to a traditional IRA account. Each spouse can contribute the full $5,500 or $6,500 amount for their own IRA account, depending on their respective ages. This then gives the Married Filing Jointly couple a double benefit from the IRA Adjustment deduction.

A traditional IRA is called a tax-advantaged retirement plan, because you benefit from a tax deduction now, while at the same time the earnings accruing in the account – are not taxable until you take distributions during your retirement. Banks and brokerages can help you setup your traditional IRA account into which these contributions are deposited. You have to make the deposit into the IRA account by the due date of the tax return year you are filing, on which you are claiming the IRA deduction. That is usually April 15th of the following year. For example, the 2016 year tax returns were due on April 18th, 2017. Your IRA contribution, to count on your 2016 tax return, had to be deposited by April 18th, 2017.

If you have a retirement account at your job, like a 401(k) plan, and you and your company made contributions into that 401(K) plan, your allowable traditional IRA contribution amount may be limited if your salary is high enough. The IRS provides a worksheet to calculate the limitation, that is also built into all the tax software. See on page 17 of Publication 590A – Contributions to IRAs.

The IRA Contribution deduction is listed on line 17 of the form 1040A.


Student Loan Interest is an up to $2,500 Adjustment deduction available to taxpayers who are personally liable to repay the student loan amount. The loan must be for qualified higher education expenses including tuition, fees, room and board, and related expenses such as books and supplies. Eligible institutions include most colleges, universities, and certain vocational schools. Married couples can only take the $2,500 deduction, not $2,500 each. You should receive a form 1098-E from the Bank or Government Agency that holds your loan, that list the amount of Student Loan Interest you paid for that tax year. Click form 1098-E for the form.

Once your modified Adjusted Gross Income rises above a certain level, the deduction begins to phase out, and is not allowed above a threshold level. These are:

  • Single, Head of Household, Qualifying Widow(er) filing status:
    • above $65,000 the deduction begins to phase out
    • above $80,000 the deduction is no longer allowed
  • Married Filing Jointly filing status:
    • above $130,000 the deduction begins to phase out
    • above $160,000 the deduction is no longer allowed
  • Married Filing Separately
    • The deduction is not allowed at any income level, because Congress wrote this restriction into the Law. Many credits and deductions are not allowed when you file as Married Filing Separately.

The Student Loan Interest deduction is listed on line 18 of the form 1040A.


Tuition and Fees is an up to $4,000 Adjustment deduction you can take if you had up to $4,000 of qualified Tuition and Fee payments for the tax year. The same income phaseout limits apply, as were the case with the Student Loan Interest deduction. You also cannot take this Adjustment if you take any of the other two Education Credits, which will be explained in a later blog post. Those are the American Opportunity Credit and the Lifetime Learning Credit. All tax software will optimize your situation, to recommend which of the three Education Adjustment and Credits – will give you the best tax benefit. You will receive a form 1098-T from the Education Institution, that list the amount of Tuition and Fees you paid for that tax year. Click form 1098-T for the form.

Once your modified Adjusted Gross Income rises above a certain level, the deduction begins to phase out, and is not allowed above a threshold level. These are:

  • Single, Head of Household, Qualifying Widow(er) filing status:
    • below $65,000 the deduction is $4,000
    • between $65,000 and $80,000 the deduction is $2,000
    • above $80,000 the deduction is no longer allowed
  • Married Filing Jointly filing status:
    • below $130,000 the deduction is $4,000
    • between $130,000 and $160,000 the deduction is $2,000
    • above $160,000 the deduction is no longer allowed
  • Married Filing Separately
    • The deduction is not allowed at any income level.

Click form 8917 – Tuition & Fees deduction for the form and instructions used to calculate the credit. The Tuition and Fees deduction is listed on line 19 of the form 1040A.


The (4) Adjustments are added together and listed on line 20 of the 1040A, which is called your Total Adjustments. This line 20 value is then subtracted from your line 15 Total Income value, to generate your Adjusted Gross Income value shown on line 21 of the form 1040A.


Click the link below for the next Blog post to learn about the Standard Deduction, and bonus amounts that can be added to the Standard Deduction for taxpayers over the age of 65 and/or blind.

The 1040A: The Standard Deduction


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: (7) New Income categories

Seven new income categories are added to the form 1040A, and the $1,500 limit on Taxable Interest is removed.


  • Taxable Interest Cap removed:
    • If you remember, the form 1040EZ limited the Taxable Interest you could report, to $1,500 or less. The 1040A removes that cap, so you can report Taxable Interest over $1,500. You must, though, report that greater than $1,500 Taxable Interest on the Schedule B form. You list each payer of Taxable Interest on the IRS Schedule B – so it matches the records on file with the IRS. If you earn over $10 in Taxable Interest, your bank or broker is required to send you a form 1099-INT that reports that interest. The 1099-INT form has all the information you need to include on your tax return. Taxable Interest is shown on line 8a of the form 1040A. Click this link form 1099-INT to see the form.
  • Tax-Exempt Interest
    • Tax-Exempt Interest is typically paid if you own a Municipal Bond, or own a mutual fund that contains Municipal Bonds. The interest you earn on these types of bonds is not taxable on your IRS tax return. You still are required to report the Tax-Exempt Interest on your tax return, as a record-keeping match with the IRS computers. This type of interest is also reported to you on a 1099-INT form.
    • Many States also do not tax interest earned from Municipal Bonds – provided the bonds are issued from their State. For instance, I live in New York City, and if I received interest from any Municipal Bonds issued within New York State, they would be tax free on my New York State tax return. If I owned Municipal Bonds from New Jersey, then they would be taxed on my New York State tax return. Your tax professional can help determine this for you – if your State will tax the interest you received from Municipal Bonds. Tax-Exempt Interest is shown on line 8b of the form 1040A.

Ordinary Dividends are the share of a company’s profits, passed onto the shareholders, usually paid on a quarterly basis. You could receive these if you own a stock that pays dividends, or from a mutual fund that contains dividend paying stocks in their portfolio. Dividends are reported to you on the form 1099-DIV. Click this link form 1099-DIV for the form.

Ordinary Dividends are included in your Total Income, and are taxed at one of the (7) regular Individual Income tax rates of 10%, 15%, 25%, 28%, 33%, 35% & 39.6%. Ordinary Dividends are shown on line 9a of the form 1040A. If you received over $1,500 in Ordinary Dividends for the tax year, these must also be reported on the Schedule B. You list each payer of Ordinary Dividends on the Schedule B, so the IRS can cross-match these with their computer records.

Qualified Dividends are eligible to be taxed a lower tax rate, called the Capital Gains tax rates – of 0%, 15%, or 20%. You pay substantially less tax if your dividends are eligible to be Qualified Dividends.

  • Taxpayers in the regular Individual income tax brackets of 10%/15% – pay a 0% Capital Gains tax rate.
  • Taxpayers in the 25%/28%/33%/35% regular Individual income tax brackets – pay a 15% Capital Gains tax rate.
  • Taxpayers in the 39.6% regular Individual income tax bracket – pay a 20% Capital Gains tax rate.

You must own the Stock that paid the dividends, for an IRS specified holding period, for those dividends to be Qualified Dividends. That is typically owning the Stock for more than 60 days during the 121-day period that began 60-days before the ex-dividend date. The ex-dividend date is the first day following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment.

Fortunately you do not have to calculate this IRS holding period for yourself, because the stock company or brokerage firm will determine this for you, if your dividends are to be Qualified.

They then report those to you on the 1099-DIV form, usually by the end of February. Qualified Dividends are shown on line 9b of the form 1040A.


Capital Gain Distributions are typically paid to you, when a mutual fund you own shares in, sells a Stock or Asset for a profit. That sale of an asset for a profit – or gain – is called a Capital Gain. The mutual fund must pass that Capital Gain onto you, as a shareholder of the mutual fund. If the mutual fund held that underlying Stock or Asset for more than one year, the Capital Gain reported to you is a long-term gain, subject to the more favorable Capital Gain tax rates discussed earlier. If the mutual fund held the underlying Stock or Asset for less than one year, the gain to you is short-term. Short-term gains then are reported to you as an Ordinary Dividend, taxable at regular Individual income tax rates, as discussed earlier.

The brokerage firm or mutual fund company will send you a form called a 1099-Consolidated statement which lists these Capital Gain Distributions on line 2a and/or the Ordinary Dividends on line 1a. It has everything you need to report these transactions on your tax return. Click this link form 1099-Consolidated (TD AmeriTrade sample) for a sample of this form. Capital Gain Distributions are shown on line 10 of the form 1040A.

If you only have Dividends and Capital Gain Distributions, the brokerage could just send you a 1099-DIV form, that also can list Capital Gain Distributions on line 2a of that 1099-DIV form. Most often, though, they will send you the 1099-Consolidated form.


IRA Distributions are payments to you, from any of your IRA retirement accounts. They are reported to you on the form 1099-R.  Click this link form 1099-R for the form. Distributions from a regular IRA account are taxed as Ordinary Income. Distributions from a ROTH IRA are not taxed, but still have to be reported on your tax return. If you are under age 59 1/2, you most often have to pay a 10% early withdrawal penalty tax – unless you qualify for an exception. If you “Roll Over” another retirement account into your existing IRA, most often this is a tax-free exchange – providing you followed the IRS rollover rules. You list the total IRA distribution amount on line 11a of the form 1040A. If any of that amount is taxable, that is listed on line 11b of the 1040A.

Your broker should indicate with the proper code on the 1099-R form, if any of the IRA distribution is taxable. Your tax professional can also help you determine this – particularly if any of the distribution will be taxable.


Pension and Annuity Distributions are distributions to you from your retirement accounts, from the company or institution you worked for. These are reported on lines 12a and 12b of the form 1040A.

Pensions provide you a guaranteed monthly benefit upon your retirement, based on your years of service, your salary, your age at the time of retirement, and the distribution rules of the pension. Some pensions are tax free, others are partially taxable, and others are fully taxable. This depends on the rules of the pension, your situation as you worked, and when you retired. Your yearly pension distributions are reported to you on a 1099-R form, which will typically tell you how much of the pension is taxable. Many companies and institutions have stopped offering traditional pensions to their new employees, and instead offer them a 401(k) plan which more closely resembles a traditional IRA account.

Annuities are an Insurance contract, that also pays out a fixed monthly amount to you during your retirement. Sometimes an annuity is offered to older employees, instead of a lump-sum buyout of their traditional defined benefit pension. This might happen when a large Company needs to reduce their traditional pension exposure, and so in turn offers older employees an incentive to retire early – relieving the Company of the longer-term pension liability. An annuity will pay you a fixed monthly amount, typically throughout your entire retirement. Your yearly annuity distributions are reported to you on the same 1099-R form, which will also indicate if the annuity payments are taxable.


Social Security Benefits are paid to you upon your retirement. You can begin receiving benefits as early as age 62, and the latest when you turn 70. You will receive your “full benefits” if you wait to start until your full retirement age, as defined by this table Full Retirement Age Table for SS Benefits. You will receive less than your full benefits, if you begin receiving Social Security benefits before your full retirement age. You could receive much more, if you wait until age 70. The Benefits are reported to you on the SSA-1099 form. Click this link form SSA-1099 for the form.

Beginning in 1984, some of your yearly Social Security Benefits could be taxable – up to 50%. In 1993 that was increased to 85% that could be taxable. This was done in 1984 to “save” Social Security and was the agreement negotiated between President Reagan and House Speaker Tip O’Neal. That rule is still in effect today, with up to 85% taxable. Many taxpayers are not aware that Social Security Benefits can be taxed, and receive this unpleasant surprise at tax time.

If you only receive Social Security Benefits with no other income, none is taxable on your Federal Tax return. If you receive a taxable Pension, Annuity or other taxable Income, then up to 85% of your Social Security might have to be reported as taxable. An IRS formula and worksheet determines this for you on Taxable Social Security Benefits Worksheet. All of the tax software used today also automatically calculates this for you, and completes the worksheet.

This formula takes into account half of your Social Security Benefits, and then adds that to any other taxable income and tax-exempt interest you received during the tax year. For a Single, Head of Household, Qualifying Widow(er), or Married Filing Separately taxpayer, if that total is over $25,000 – then some of your Social Security Benefits would be taxable, up to a maximum of 85%. For a Married Filing Jointly couple, that total has to be over $32,000. All tax software automatically calculates this for you, to determine if any or up to 85% of your Social Security Benefits are reported as taxable income.

You list the total Social Security Benefits distribution amount on line 14a of the form 1040A. If any of that amount is taxable, that is listed on line 14b of the 1040A.


Click the link below for the next Blog post to learn about the (4) new Adjustments to income that have been added to the form 1040A.

The 1040A: (4) New Adjustment categories


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: Qualifying Children & Relatives

A Dependent is an IRS tax definition that means a Qualifying Child or a Qualifying Relative. The Dependents you claim on your tax return are listed on line 6c of the form 1040A. The IRS has tests each Dependent must meet – to qualify to be listed as your Dependent. See below.

This link for Publication 501-Exemptions, Standard Deduction & Filing Information gives the IRS definitions and explanations for:

  • Filing Status
  • Filing Requirements
  • Definitions of Dependents
  • Personal and Dependent Exemptions
  • Standard Deduction

It is a terrific resource for this and the next several Blog posts.


Qualifying Children are defined by five IRS tests they have to meet. If the Child you are attempting to claim as a Dependent on your tax return meets all (5) of these tests – then you can claim them, listed as a Qualifying Child on your tax return.

  • Relationship to you, the taxpayer claiming them as a Dependent
    • Son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendent of any of them, for example your grandchild, niece or nephew
  • Age on December 31st of the tax year
    • Under age 19 at the end of the tax year and younger than you, or your spouse if filing jointly
    • Under age 24 at the end of the tax year, a student, and younger than you, or your spouse if filing jointly. A student is your Child who during any part of 5 calendar months of the tax year, was enrolled as a full-time student at a qualified school.
  • Support provided by the Child
    • The Child cannot provide over half of his/her support during the tax year. Support is generally defined as living expenses.
  • Residency
    • The Child must have lived with you, for more than half of the year. This includes “temporary absences” like attending college, as long as the student’s belongings and permanent residence is still with you.
  • Joint Filing
    • The Child you are claiming as a Dependent, cannot file a Joint tax return with their spouse, except for one exception. That Child can only file a Joint tax return with their spouse, to claim a refund of withheld tax.

Qualifying Relatives are defined by four IRS tests they have to meet. If the Person you are attempting to claim as a Dependent on your tax return meets all (4) of these tests – then you can claim them, listed as a Qualifying Relative on your tax return.

  • Not a Qualifying Child of you or any other taxpayer
    • The person you are attempting to claim as a Qualifying Relative, cannot satisfy all the tests as a Qualifying Child of any other taxpayer, including yourself – even if you or another taxpayer do not claim them.
  • Relationship to you, the taxpayer claiming them as a Dependent
    • Son, daughter, stepchild, foster child, or a descendent of any of them, for example your grandchild
    • Brother, sister, half sister, or a son or daughter of any of them, for example your niece or nephew
    • Father, mother, or ancestor or sibling of either of them, for example your grandmother, grandfather, aunt or uncle
    • Stepbrother, stepsister, stepmother, stepfather, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law
    • Any other person (other than your spouse) who lived with you for the entire 12-months of the year, as a member of your household.
  • Gross Income test
    • The income of the Qualifying Relative must be below the Personal Exemption amount for that tax year. This was $4,050 for the 2016 tax year. This amount typically increases each year for inflation. Some income like Social Security Benefits, does not count towards this Gross Income test. The IRS gives clear instructions what to include.
  • Support test
    • You must provide over half of the person’s support. Support is generally defined as living expenses. The IRS provides worksheets to help properly determine if you indeed provided more than 50% of the Support for this Qualifying Relative you are attempting to claim.

Most of the relatives listed above in the Relationship category, do not have to live with you – to still be listed as your Qualifying Relative. For example, your parents can live separately from you, but you provide over 50% of their support. You can therefore claim them as Qualifying Relatives, provided they also meet the other tests. Only a Qualifying Relative that is not defined as your relative from the lists above – must live in your household for the entire year. For example, your Cousin or other distant relative, your Girlfriend or Boyfriend, or Friend.

See page 19 of the Publication 501-Exemptions, Standard Deduction & Filing Information for the list of “Relatives who don’t have to live with you” in your household – to still qualify them as one of your Dependents.


Click the link below for the next Blog post to learn about the (7) new income categories added to the form 1040A.

The 1040A: (7) New Income categories


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.

The 1040A: Filing Status

 

Filing Status tells the IRS what category of taxpayer you are – as defined by your marital status on December 31st of each tax year. Filing Status can also be affected by your household situation – if you support children or relatives living in your home. Each tax year, you have to tell the IRS if you are considered Single, Married, or Unmarried supporting a household. The (5) Filing Status categories define these scenarios.

Filing Status is important because the Standard Deduction, the Tax Rate Tables and many Adjustments, Deductions and Credits are based on your Filing Status. You might qualify for more than one Filing Status, so you would choose the one that gives you the best tax benefits. For example, some people can file as Single or Head of Household. Head of Household usually gives the taxpayer a more favorable tax treatment.

This link for Publication 501-Exemptions, Standard Deduction & Filing Information gives the IRS definitions and explanations for:

  • Filing Status
  • Filing Requirements
  • Definitions of Dependents
  • Personal and Dependent Exemptions
  • Standard Deduction

It is a terrific resource for this blog post, and the next several Blog posts.


Single is the first filing status the IRS lists on the form 1040A. It means that you were not legally married on December 31st of the tax year. The scenarios that define you as Single are:

  • You were never married in that tax year.
  • You were legally separated or divorced by December 31st
  • You were recently widowed and did not remarry in the tax year immediately following the year your spouse died.
    • Typically you would have the filing status of Married Filing Jointly or Separately, in the year your spouse dies. It is the following year you could be considered Single.
  • You did not support children or relatives in your household

Married Filing Jointly (even if only one had income) is the filing status where you and your spouse combine both of your Incomes and Deductions onto one tax return. You also are both equally liable for any tax due on the jointly filed return. You can also lists dependent Children or Relatives on your tax return, with this filing status. The many scenarios are:

  • You were married as of December 31st of the tax year, and lived together the entire tax year. Both of you had income to report.
  • You were married and lived together the entire year, and only one spouse had income to report.
  • You were newly married in the current tax year, and remained married as of December 31st. You have to file as a Married couple, even though you weren’t married the entire year. Your status on Dec. 31st is what counts.
  • You were married as of December 31st of the tax year, even if you didn’t live with your spouse on December 31st. You both still can choose to file jointly and report your combined Income and Deductions to the IRS.
  • Your spouse died in the tax year, and you did not remarry in the tax year.
  • You were married as of December 31st, but your spouse died early in the following year before the April 15th tax filing deadline. You still file as Married Filing Jointly or Separately, as that was your marital status on December 31st, of the year prior to the death of your spouse.
    • You will also file as Married Filing Jointly or Separately, in the year your spouse died, as explained earlier. So long as you did not remarry in the year your spouse died.

Married Filing Separately is the filing status where you and your spouse report your Income and Deductions separately. This is essentially each married spouse filing as a Single person, except you are not allowed to use the Single filing status – if you are legally married. A married couple can only file Jointly or Separately, except under special circumstances when children are involved, and the spouses have not lived together the last six months of the year. In that case, one spouse could possibly qualify to use the Head of Household filing status, and claim the children as dependents on their tax return.

Married Filing Separately is the least advantageous filing status, because many Adjustments, Credits and Deductions are not allowed when you use this filing status. Congress wrote these restrictions into the Tax Laws, as they frequently write tax law to be more advantageous to a Married couple, in this case to a Married Filing Jointly couple.


Politicians use the tax code to influence behavior:

Tax rules that do not favor the Married Filing Separately filing status is a good example of how Presidents and Congress write the Tax Laws to influence behavior – in agreement with their political views. This has been happening for many decades, and is a tactic equally employed by both Democrats and Republicans.

It will happen again in 2017/2018, as President Trump and the new Republican Congress will put their mark on the tax code. To be fair, the same thing happened during President Obama’s first term in 2009/2010, when he and the Democrats controlled the White House and the Congress. They passed the Affordable Care Act – which created an enormous influence of change to Individual and Business taxes.


Head of Household (with qualifying person) is the filing status where you are considered “Unmarried”, and you also financially support one or more Dependents in your household. You could be supporting a friend, relative, or child – as they live in your household – and you provide for their living expenses. These Dependents are either Qualifying Children and/or Qualifying Relatives. A separate blog post defines Dependents.

The (3) tests you must meet to use the Head of Household filing status:

  1. You are unmarried, or considered unmarried, on the last day of the tax year, on December 31st.
  2. You paid more than half of the cost of keeping up your home for the tax year. The IRS provides a worksheet to calculate this.
  3. A qualifying person, that you list as a Dependent on your tax return, lived with you for more than half of the tax year, including temporary absences like a child at college. A dependent parent does not have to live with you.

In some circumstances the Dependent does not have to live in your household, and you can still qualify to use the Head of Household filing status. For example, your parent can be living in a nursing home, but you still provide the majority of their support, or their living expenses. You could claim them as a Qualifying Relative – which would allow you to use the more advantageous Head of Household filing status, versus for example the Single filing status. The parent would just have to meet all (4) of the IRS tests, to still qualify as your Qualifying Relative. For example, their taxable income could not exceed the Personal Exemption amount each year. This is called the Gross Income test. There are (3) other IRS tests they must meet.

See page 19 of the Publication 501-Exemptions, Standard Deduction & Filing Information for the list of “Relatives who don’t have to live with you” in your household – to still qualify you to use the Head of Household filing status.

A spouse of a married couple could be considered “Unmarried”, if the couple did not live together the last six months of the year. That “Unmarried” spouse could then possibly list Qualifying Children as Dependents on their tax return, and qualify to use the Head of Household filing status, instead of the less advantageous Married Filing Separately filing status. The children would just have to meet all of the (5) IRS tests that would define them properly as Qualifying Children.

This is by far the most complicated, and abused, Filing Status category. Many taxpayers try to qualify for the Head of Household filing status, only to have the IRS disallow it after they are audited. Competent tax preparers will help you with this, to make certain you meet all the requirements.


Qualifying Widow(er) (with dependent child) is the filing status to use when your spouse died the year before the current tax year, and you still are supporting your young children. You can qualify to use this Filing Status for the two tax years after the year your spouse died. It gives you the best tax treatment, as it uses many of the values for the Married Filing Jointly filing status. It is more advantageous than using the Head of Household filing status.

For example, your spouse died in 2015 and you are still raising two young Children. For the 2015 tax year your spouse died, you would still use the Married Filing Jointly filing status. For the tax years 2016 and 2017, you would use the Qualifying Widow(er) filing status. Then for the tax year 2018 and beyond, you would use the Head of Household filing status. It is designed to give you an extra financial buffer, for those first two years after your spouse died, and you remained unmarried supporting your children.


Click the link below for the next Blog post to learn about which Dependents you can list on your tax return.

The 1040A: Qualifying Children & Relatives


Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com

Blog Written Content ©2017 Michael D Meyer. All rights reserved.

PDF IRS forms, instructions & publications – ©2017 Department of the Treasury Internal Revenue Service IRS.gov


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.