The 1040EZ: Payments, Credits and Tax

The US Tax System is based on what is called the “Pay As You Go” rule. That means taxes are withheld from each of your paychecks as you earn your salary throughout the year. Your company then periodically remits these withholding taxes to the IRS and the States, on your behalf. Your bank might also withhold Federal Income Tax from the Taxable Interest you earned during the year – if you gave the bank instructions to do that tax withholding. Federal and State tax might also be withheld from any Unemployment Compensation Benefits you received – again if you instructed them to do that tax withholding.

  • The (5) tax categories typically withheld from your paycheck are:
    • Federal Income Tax
    • Social Security Tax
    • Medicare Tax
    • State Tax
    • Local Tax

The Federal Tax withheld, on your behalf throughout the year, is what is shown on line 7 of the form 1040EZ. The Social Security and Medicare taxes withheld from your paycheck, are forwarded to those programs that support current retired citizens who collect Social Security payments, and receive Medicare coverage. You cannot get a refund of the Social Security or Medicare taxes withheld from your paychecks. These are called FICA taxes (Federal Insurance Contributions Act), or Payroll Taxes. Social Security started in the 1930’s, and Medicare began in the 1960’s. Currently you pay a 6.2% Social Security tax, and a 1.45% Medicare tax.

These FICA payments are also noted as associated to your own Social Security account, because once you contribute to these programs for 40-quarters, or 10-years, you qualify for Social Security payments and Medicare coverage upon your retirement. The final cumulative amount of Social Security/Medicare taxes you contributed into the system during your working career – determines the eventual monthly Social Security benefits you will receive upon your retirement.

The State and Local taxes are remitted to your State, if they have an income tax. Here in New York City, we pay State Tax to New York State, and Local Tax to New York City. Seven States currently have no income tax, and Tennessee and New Hampshire only tax interest and dividend income. Not having a State income tax is a big attraction for these States – as a benefit for new residents to move into their State. Florida and Texas in particular have benefited from this status.

The only tax Credit allowed on the form 1040EZ – is the Earned Income Credit, or (EIC) for short.  This appears on line 8a of the form 1040EZ. This credit begin in 1975 for lower income taxpayers, as an incentive to encourage work, and to be rewarded for that earned income. It is one of the U.S. Government’s longstanding anti-poverty programs. It has the effect of lowering the tax liability for those taxpayers who qualify for the credit. For the 2016 tax year, the maximum EIC credit that could be taken on the form 1040EZ was $506. A Single person could make up to $14,880 before the credit is phased out, and a Married Filing Jointly couple could make up to $20,430 before they are phased out of the credit. The credit is calculated from the EIC Table. Click the hyperlink  form 1040EZ-EIC Table to see in a separate browser window. You can then see the income levels that generate the maximum credit of $506. For instance, a Single taxpayer earns the full $506 credit when their income is between $6,600 and $8,300. The credit for that Single taxpayer is then gradually lowered and totally phases out as their income reaches the top $14,880 threshold.

Line 9 on the form 1040EZ, adds the Federal Income Tax withheld from line 7, and any Earned Income Credit you are entitled to, from line 8a. This sum is your Total Payments and Credits value.

Your yearly Income Tax Liability is calculated by looking up your Taxable Income value in the tax table, for your filing status of Single or Married Filing Jointly. That Income Tax Liability value is then entered on line 10 of the form 1040EZ. Click the hyperlink form 1040EZ-Tax Table to see the Income Tax Liability values for the various Taxable Income levels from $5 to $99,999. Remember your Taxable Income must be below the $100,000 threshold to use the form 1040EZ. The tax software automatically calculates your Income Tax Liability for your Tax Story, based on your Filing Status and Taxable Income value.

Line 11 of the form 1040EZ calculates the additional penalty tax, if you did not have health insurance coverage for all 12-months of the year. The penalty is called the Individual Shared Responsibility Payment, and is a component of the Affordable Care Act. It affects any tax year after and including tax year 2014. The IRS provides form 8965 Health Coverage Exemptions-Instructions which contains worksheets that begin on page 15 to calculate that penalty tax. All tax preparation software includes the worksheets and automatically calculates this penalty, if it applies to your Tax Story.

Line 12 of the form 1040EZ is your Total Tax liability. It adds the Federal Tax liability from line 10, and any line 11 Shared Responsibility Payment.

If your line 9 Total Payments & Credits, is larger than the line 12 Total Tax, then you will receive a tax refund from the IRS. This refund is shown on line 13a of the form 1040EZ. You can instruct the IRS to directly deposit your refund into your checking or savings account, or you can instruct the the IRS to mail you a paper 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.

If your line 12 Total Tax, is larger than your line 9 Total Payments & Credits, then you owe the IRS a tax payment. This tax owed to the IRS is shown on line 14 of the form 1040EZ. The IRS can directly debit the tax payment from your checking or savings account – up to Tax Day – usually April 15th each year. Or you can mail the IRS a payment voucher and check to pay your tax due, also typically by April 15th each year. All tax software will print the payment voucher for you – if you mail in your payment.


Congratulations! You have now learned most everything you need to know about the form 1040EZ – from if you qualify to use the form – to if you receive a refund or owe taxes.

Blog #4 begins the explanation of the IRS form 1040A. Click the link below to go to that blog post.

The 1040A: 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 1040EZ: Who Can Use this Form?

The 1040EZ is titled by the IRS as the “Income Tax Return for Single and Joint Filers with No Dependents.” Click this hyperlink to open the IRS form 1040EZ into a new browser window, to refer to as we learn about the form. You can then toggle between the blog posts and the 1040EZ form.

Click the hyperlink below for the 46-page form 1040EZ instruction booklet from the IRS, as form 1040EZ-Instructions. The explanations in these blog posts are substantiated by the Tax Law explained in the IRS instruction booklet. The instructions are very well written and frequently give terrific examples to demonstrate Tax Laws pertinent to the 1040EZ.

The first requirement to use the 1040EZ is your Filing Status must be only Single or Married Filing Jointly. You must be younger than age 65 at the end of the year on December 31st. You also cannot claim your dependent children or relatives as a deduction, who you might support and live with. To list these Dependents as a deduction on your tax return, you must use either the 1040A or 1040 form.

Income category is the next qualification to use the form 1040EZ. You are limited to income only from Wages, Salaries, Tips, Taxable Scholarships or Grants, Taxable Interest of not over $1,500, Tax Exempt Interest, Unemployment Compensation, and non-taxable Social Security Benefits. These are listed separately in that order on lines 1, 2 & 3 of the form 1040EZ. Three income categories do not have a corresponding line on the 1040EZ form, but they do not disqualify you from using the form.

  • Taxable Scholarships or Grants
  • Tax-Exempt Interest
  • Non-Taxable Social Security Benefits

Taxable Scholarships or Grants are listed in the margin to the left of line 1 and are included as ordinary income. These amounts typically cover room and board, travel and other education-related living expenses that cannot be used to qualify for the (1) Education adjustment deduction and/or the (2) Education tax credits. These are sometimes reported to you on your W-2 from your salary job, as included in your wages.

The amounts of Tax-Exempt Interest you received is listed in the margin to the left of line 2. These amounts are not taxable, but are reported to the IRS on the 1040EZ to match their computer records of interest you received. Tax-Exempt Interest is also included in the formula that determines if any of your Social Security Benefits are taxable.

You could have received Social Security Benefits and still use the form 1040EZ – but none of the benefits can be taxable. A worksheet on page 12 of the instructions helps you determine this. If the worksheet indicates that some of your Social Security Benefits are taxable, you must use the tax form 1040A or the 1040 form. The worksheet is included in all tax software, so this requirement will automatically be verified for you.

The sum of these Income categories is called your Adjusted Gross Income, or (AGI) for short. The AGI appears on line 4 of the form 1040EZ.

On the form 1040EZ, the Standard Deduction and Personal Exemption for your filing status are combined into one deduction number. That value is $10,350 for a Single filer, and $20,700 for Married Filing Jointly filers. This value appears on line 5 of the 1040EZ form. Later blog posts will explain the Standard Deduction and Personal Exemption, as part of the form 1040A explanations.

  • Single taxpayer = $10,350 combined deduction
    • $6,300 Standard Deduction
    • $4,050 Personal Exemption
  • Married Filing Jointly taxpayers = $20,700 combined deduction
    • $12,600 Standard Deduction
    • $4,050 Personal Exemption for each spouse

If you are a Dependent listed on another Taxpayer’s tax return, you cannot take your Personal Exemption value for that tax year. The Taxpayer claiming you as their Dependent – gets to use your Personal Exemption as a deduction on their tax return. Your Standard Deduction is calculated using the worksheet on page 2 of the form 1040EZ, based on your income. This situation is common when Dependent children have jobs that withhold taxes from their paychecks. They still file a tax return to most often get back those withheld taxes as a refund – even though they are listed as a Dependent Child on their parent’s tax return. All the tax software calculates this for you, and recognizes you said you are a Dependent of another Taxpayer. The software knows you cannot use your Personal Exemption, but will calculate your Standard Deduction and refund accordingly. This is all part of the “software interview” process.

The next step is to subtract this line 5 combined deduction from your Adjusted Gross Income (AGI) line 4, to arrive at what is called Taxable Income, shown on line 6. Taxable Income is the income total that the IRS uses to calculate your yearly tax liability, for your particular Tax Story.

To qualify to still use the form 1040EZ, your Taxable Income must be below the $100,000 threshold. That means the total of all your Income categories, minus the combined Standard Deduction and Personal Exemption(s) value for a Single person or Married Filing Jointly couple – must still be below the $100,000 threshold to use the form 1040EZ.

  • In Summary, these are the requirements to be able to use the form 1040EZ
    • Your filing status must be Single or Married Filing Jointly
    • You must be younger than age 65, on December 31st
    • You cannot claim children or relatives as dependents
    • Your income categories are limited to Wages, Salaries, Tips, Taxable Scholarships or Grants, Taxable Interest of not over $1,500, Tax-Exempt Interest, Unemployment Compensation and Non-Taxable Social Security Benefits.
    • All of your Tip income was reported on your W-2 form(s)
    • None of your Social Security Benefits can be qualified as taxable
    • You must use the Standard Deduction
    • You do not claim any Adjustments to Income
    • Your final Taxable Income must be below the $100,000 threshold
    • The only Tax Credit you can claim is the Earned Income Credit (EIC)
    • You cannot use the form 1040EZ if you qualified for health insurance with the Premium Tax Credit through any of the Marketplace exchanges
    • You cannot use the form 1040EZ if you received any Advance Premium Tax Credits to help pay for your monthly health insurance premiums

The next Blog post explains how to report and calculate the Payments, Credits and Tax, on the form 1040EZ. Click that link below to continue.

The 1040EZ: Payments, Credits and Tax


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.