The great architect Louis Sullivan once wrote, “form follows function.” I can’t help but wonder if, in the less stable world of tax, new IRS forms follow dysfunction.
In 2017, President Trump promised that, “Under our plan, 95 percent of Americans will be able to file their tax returns on a single page without having to keep receipts, fill out schedules, or track endless paperwork. We're giving hardworking Americans their time back, and we're giving them their money back.”
Among the many changes wrought by the resulting Tax Cut and Jobs Act (TCJA) were the births of multiple new tax forms, including a new Form 1040 and a new tax withholding Form W-4. Their stated aim was to simplify tax filing.
That’s not quite what happened.
Post TCJA, the IRS cast aside the familiar 80-year-old 1040A short form, the nearly 40-year-old abbreviated Form 1040EZ, and the traditional Form 1040. The agency replaced them all with a shorter, two-page, 23-line 1040 that tried to achieve Congress’ pledge to acrobatically cram the form onto a postcard. But it could only attempt to do so by adding six schedules.
The new Form 1040 caused considerable confusion, frustration, and ridicule. My Tax Policy Center colleague Howard Gleckman called it a “slight of hand gimmick… little more than a public relations stunt” And he noted it still didn’t fit on a postcard.
Then-National Taxpayer Advocate Nina Olson predicted that the new Form 1040 “will cause additional complexity and hassle for many taxpayers and preparers,” increase the risk of transcription errors, and result in higher bills from tax practitioners.
Now the IRS is attempting to make amends. Modestly.
The New, New Form 1040
On July 11, the IRS released a new draft Form 1040 reordering information and adding back to the Form 1040 data that had been on the supporting schedules. One commentator notes, with nostalgia and some exaggeration, that “everything old is new again.” Another says it’s still “definitely not a postcard. More like a greeting card. Or a sympathy one, maybe.”
The latest draft is more than a tune-up but less than an overhaul. Among the key changes from last year: It returns the standard deduction and income reporting and reconciliation to the first page of the income tax return (now including capital gains), it ends the page with taxable income, separates tax credits, moves signature lines to page 2, and pares those six supplementary schedules to three.
Oh, yes, there’s also a new tax form available for those 65 and older, the 1040-SR (an idea proposed by Henry Bloch 45 years ago), mandated by the Bipartisan Budget Act of 2018.
Form W-4, Too
Then there’s the new W-4 that enables employees to establish or adjust their income tax withholding. Because the TCJA made significant changes to the individual income tax, the IRS released a revised Form W-4 for 2019 in June 2018 and undertook an extensive campaign, including over a dozen press releases, to urge filers to take a “Paycheck Checkup” with its Withholding Calculator and, if necessary, complete a new W-4 form.
But few taxpayers recalculated their withholding—less than one in five, according to one survey. If it took Taxpayer Advocate Olson three tries to get her withholding correct, you know improvement was needed.
And tax practitioners complained that the new W-4 added compliance burdens, reduced accuracy, compromised employee privacy, disadvantaged small businesses, and required more education of employers and employees. In response, the Treasury Department delayed implementation of a new form until 2020.
This August, the IRS released a second redesigned draft W-4 for 2020 and replaced its online calculator with an improved mobile-friendly Withholding Estimator. It says the new W-4 “uses a building block approach that replaces complicated worksheets with straightforward questions” to improve accuracy. It’s too early to tell whether it will work.
Significance
So why does this matter?
First, it illustrates the tax code’s complexity and how difficult it is to simplify forms without first simplifying the underlying law. And it reaffirms that reconfiguring a set of tax forms is not real simplification.
Second, it is a reminder that 95 percent of taxpayers now use do-it-yourself software with a Q&A format or employ return preparers to file for them, which blunts and masks the impact of complexity—few taxpayers actually fill in a Form 1040 by hand anymore.
Third, the form revisions highlight the need for real reform in tax administration: The IRS is coping with budget and staff cuts, declining customer service and enforcement, and mandates to implement new laws. At the same time, urgent IT needs are unmet. It is a constant struggle to repair the tax administration ship while navigating tax seasons successfully. If basic forms require repetitive revisions, what deeper, less visible functions need attention?
