Tax Time 1991

Starting December 28, about 108 million tax packages and postcards will be delivered in the mail to taxpayers. For the second year in a row taxpayers will have relatively few law changes to tackle so the IRS is expecting another smooth filing season. One big change should benefit 4.5 million taxpayers who can now file the more simple Form 1040A.

Revised Form 1040A for Taxpayers with Retirement Income

The IRS has revised the Form 1040A so that more taxpayers can use it -- mostly retirees who used the longer Form 1040 last year just to report retirement income, the tax credit for the elderly or estimated tax payments.

An estimated 4.5 million taxpayers can now use the simpler form to report pension or annuity income, IRA distribution and taxable social security benefits. Also, the Form 1040A can now be used by those who made estimated tax payments or want to claim the credit for the elderly or disabled.

The revision resulted from suggestions the IRS got form taxpayers and return preparers at a series of town meetings the IRS held around the country in recent years and from Congress. The IRS is sending a Form 1040A tax form package to taxpayers whose last filing indicates that they can take advantage of the more simple form.

Separate Form 1040EZ Tax Package

There will be a separate package containing the Form 1040EZ, the one page form for single people with simple tax situations, and instructions. This will be sent to those who either filed or could have filed Form 1040EZ last year. In past years the 1040EZ and 1040A forms were contained in the same booklet.

Highlights of Other 1990 Changes

In addition to IRS' continuing efforts to refine the tax forms, previously enacted tax laws contain provisions affecting 1990 taxes and forms. Major changes include:

Tax Rates -- The basic tax rates remain the same for 1990 (15 and 28 percent) but the tax brackets have been indexed for inflation. This indexing is built into the tax tables and tax rate schedules.

Exemptions -- The exemption amount allowed for the taxpayer, spouse and each dependent has been increased, by indexing for inflation, to $2,050, up from $2,000 last year.

Standard Deduction -- For most people the standard deduction is increased for 1990 as a result of indexing for inflation, as indicated in the table below:

                                 1990            1989

Single                          $3,250          $3,100

Married Filing jointly or
qualifying widow(er)             5,450           5,200

Married filing separately        2,725           2,600

Extra for age/blindness
(single)                         4,750           4,550

Minimum for dependent              500             500

Earned Income Credit -- Taxpayers and those who owe no tax for 1990 may be able to claim this credit if they had earned income under $20,264 and a child living with them. The maximum credit available is $953. Both the 1040 and 1040A forms have a new line for taxpayers to report advanced earned income credit payments received during 1990.

Self-employment Tax Deduction -- Social Security legislation enacted in 1983 contained a provision that took effect in 1990 -- the replacement of the 2 percent self-employment tax credit with a two-part self-employment tax deduction. First, on Schedule SE, a deduction is claimed to reduce net earnings subject to the 15.3 percent self-employment tax. Then, with a new line added on the face of the Form 1040, one half of the self-employment tax computed on Schedule SE is deducted.

These changes have the effect of putting self-employment tax on the same basis as FICA payments made by employers and employees. The employer's share of FICA is not considered income to the employee and the employer is allowed a deduction for FICA tax paid.

College Savings Bonds -- Starting in 1990, taxpayers can exclude interest from series EE U. S. Savings Bonds purchased after 1989 for qualified higher education expenses. A new Form 8815, "Exclusion of Interest From Series Ee U. S. Savings Bonds Issued After 1989", is used by taxpayers to determine excludable interest.

Electronic Tax Filing

Last year 4.2 million taxpayers who were due refunds filed their returns electronically. This year the IRS expects to get about 6 million returns filed this way. Those who file their tax forms electronically usually get their refunds within three weeks. They also lessen the chance that simple math or data entry errors will slow processing of their returns.

Electronic tax filing is offered by return preparers and transmitters who successfully complete transmission tests and have been accepted into the electronic filing program by the IRS. Started in three locations in 1986 when 25,000 returns were filed, electronic filing became available nationwide last year.

Although available at this time nationwide to taxpayers due refunds, IRS is testing electronic filing for those who owe additional payment with their returns.

Filing 1990 Tax Returns

The IRS expects about 113 million individual income tax returns to be filed this year, about the same number as last year. The breakdown by types of returns for 1990 compared to 1989 is:

                                1990 (est.)             1989

1040                            74.8 M                  75.0 M
1040A                           19.5 M                  18.5 M
1040 EZ                         19.1 M                  19.6 M

TOTAL                          113.4 M                 113.1 M

Typically, 70-75 percent of all returns result in refunds for the taxpayer. Last year refunds averaging about $900 went to over 76 million taxpayers.

Postcards

About 97 million taxpayers will receive tax packages. Another 11 million will get just a postcard containing their name and address label.

Postcards are sent to taxpayers who filed returns with business or farm income (Schedules C or F) and had their returns commercially prepared. These taxpayers are sent postcards because their preparers generally provide the forms they file. However, the postcard can also be sent back to the IRS to request a forms package. Last year only 700,000 of the 10.3 million taxpayers who received postcards asked for a tax package, saving $1 million.

Taxpayers who receive postcards should give their preparer the name and address label so that it can be put on their tax returns. The label speeds processing of the return and cuts the chance that a mistake could be made entering the taxpayer's name, address and social security number.

Developing the Tax Packages

Developing the tax forms and instruction packages is a year-round task for IRS that includes soliciting and evaluation suggestions from the public, tracking tax legislation and designing ways to incorporate changes onto the forms. In November, the IRS began printing the 1990 forms packages for release in December. To get the job done during the short time period, the IRS has contracts with seven large printing firms that print at multiple locations throughout the country.

Printing and mailing the tax packages costs $29 million. The cost is 28.5 cents per tax package and 13 cents per postcard.

Obtaining Additional Tax Forms

Taxpayers who need additional forms or publications can use the order blank in the back of their tax packages or they can call the IRS Forms Distribution Center. The IRS has a new tool free telephone number for requesting forms and publication -- 1-800-TAX-FORM (1-800-829-3676).

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