5 Changes to Your Federal Tax Return Form in 2021

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Last year, the Form 1040 tax return got a bit of a makeover. This tax season, the changes to the return for 2020 are less noticeable but at least as important for the average taxpayer.

They include a new tax deduction and a new tax credit, for example, thanks to coronavirus pandemic relief laws. So, even if you never set eyes on your Form 1040 because a software program or professional handles it for you, these changes stand to affect the amount of your tax refund or your tax bill.

Here’s a close-up look at how the Form 1040 for 2020 — the one for this tax season — differs from the one before it.

1. A cryptocurrency question for all

Bitcoin
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The Form 1040 for 2019 was the first to explicitly ask about virtual currency such as Bitcoin, but the question appeared on Schedule 1, which is an attachment to the 1040 that not all taxpayers are required to use.

This tax season, the question is front and center on the first page of the 1040, right after the section for your name and address: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

The real question here, though, is: Why is the IRS getting nosier about Americans’ virtual currency use?

The answer, in short, is that Uncle Sam wants to know if you owe him a cut.

Virtual currency transactions have tax consequences just as transactions involving other types of property do, at least as far as the IRS is concerned. So, if you sell or exchange virtual currency, use it to pay for goods or services, or hold it as an investment, you could owe taxes on those transactions.

As IRS Commissioner Chuck Rettig said of virtual currency last tax season:

“This emerging area is a priority for the IRS, and we want to help taxpayers understand their obligations involving virtual currency. We will also take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules involving virtual currency.”

2. Easier to read

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If you read the Form 1040 for 2020, as opposed to trusting it to your tax software or tax pro, you might notice it’s easier on the eyes than the 2019 version. Some sections of the return, and all three schedules in particular, have larger font sizes or more space between lines, if not both.

The IRS did not formally acknowledge this particular change, but it’s in line with a larger trend: The 1040 has been expanding since the 2018 edition — which was super compact because some lawmakers had claimed that the federal tax code overhaul of 2017 would enable us to file our taxes on a postcard.

3. More lines

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Perhaps the most glaring difference between the Form 1040s for 2019 and 2020 is that the latter is longer. For the most part, though, this is an optical illusion, stemming in part from the increased font and line spacing.

Additionally, the meat of the 1040 — where Uncle Sam gets into the nitty-gritty of your income — is broken up into more lines. For example, the contents of Lines 25, 25a and 25b occupied a single line (17) on the 2019 return. These changes make sense — or at least make the 1040 easier to navigate — considering that the IRS no longer has to pretend to aim for that postcard-size return.

A couple of the lines on the 2020 return are indeed new, though, as we’ll get to next.

4. A new ‘charitable contributions’ line

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Line 10b of the Form 1040 for 2020 reads, “Charitable contributions if you take the standard deduction.”

This is where you likely can deduct up to $300 in monetary donations you made in 2020 to nonprofit organizations that the IRS has classified as tax-exempt.

Normally, you must itemize your tax deductions, rather than take the flat standard deduction, to write off donations. But the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law last March, created this exception for 2020.

By the way, this deduction has since been expanded and extended, as we report in “5 Tax Breaks Extended for 2021 — If Not Longer.”

5. A new ‘Recovery rebate credit’ line

Coronavirus stimulus payment
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Line 30 of the Form 1040 for 2020 reads, “Recovery rebate credit.”

If you received the full amount for the first and second rounds of coronavirus stimulus payments that were authorized last year, you can skip this line. The recovery rebate credit is not for you because your stimulus checks were an advance payment of this tax credit.

But if you didn’t receive the full amount for either payment, you can claim the rest by claiming the recovery rebate credit, assuming you’re eligible. Note that this means you must file a return for 2020 to claim the remainder of your payments even if you would not otherwise be required to file.

If you happen to do your taxes by hand, you must use the IRS’ Recovery Rebate Credit Worksheet to determine what amount to put on Line 30 of your return. Otherwise, your tax software program or tax pro likely will handle the math for you.

To learn more about the credit, visit the IRS website’s “Recovery Rebate Credit” page or read the Line 30 instructions for the Form 1040. (The IRS tends to refer to stimulus payments as “Economic Impact Payments,” by the way — don’t let that confuse you.)

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