How to Calculate Tax Balance Due on Form 1040
The IRS radically changed the Form 1040 tax return for tax year 2018, proclaiming that it had shrunk down to the size of a post card. This was somewhat true. The revised return took up just half a page, but on both sides of a single page. Then it required filing more additional schedules than ever before, at least for some taxpayers.
The end result was that many individuals found it more difficult, not easier, to calculate their tax balances due. The steps, schedules, and line numbers explained here apply only to this 2018 Form 1040, not to previous years.
The 2019 and 2020 Forms 1040 have been revised as well, so you'll want to refer to those for these years.
How to Find the Tax Due
Subtract your total payments entered on line 18 from the total tax you owe, which appears on line 15. You have a tax refund if the result is a negative number less than zero. Enter this on line 19 as the amount you overpaid.
You have a balance due if the result is a positive number of more than zero. Put this answer on line 22. This is the amount you owe.
Put "-0-" on lines 19 and 22 if the result is exactly zero. Your payments met your tax liability dime for dime, so you have no refund coming and no balance due.
Refund or an Estimated Tax Payment?
You have the option of applying your overpayment to next year's tax debt on line 21. You might want to consider doing this if you expect that your tax obligation will be more significant next year.
It doesn't have to be all or nothing. You can divide your refund between line 20a and line 21. Maybe you're entitled to a $1,000 refund and you want to dedicate half of that to next year's taxes. You would enter $500 on line 19, "amount of line 19 you want refunded to you," and $500 on line 21, "amount of line 19 you want applied to your 2019 estimated tax."
Put the full amount of your refund on line 20a if you don't want to make any advance payments.
You can claim tax credits you qualify for on lines 12 and 17 of the 2018 Form 1040. Tax credits directly reduce how much you owe the IRS. They're either refundable or nonrefundable. The IRS will send you cash for the difference if your refundable credits are more than what you owe. Otherwise, the government effectively keeps the difference if your credits are nonrefundable.
Claiming tax credits and making estimated payments requires that you fill out and submit some of those additional schedules that came into effect with the 2018 Form 1040. The new Schedule 5 details payments you made and any refundable tax credits that you're claiming. You would transfer the total amounts to line 17 on your 1040.
The 2018 Schedule 3 lists the nonrefundable credits you're claiming and the total from that schedule transfers to line 12 of the 1040.
The IRS provides a list and pertinent information for refundable and nonrefundable tax credits on its website.
Direct Deposit of Your Refund
You can have the amount that appears on lines 20a deposited directly to your checking or savings account. Direct deposit is faster and more secure than having a refund check mailed to you.
Get out your checkbook, and look at one of your checks. You'll see a lot of numbers in the bottom left corner. The first series of numbers should be a 9-digit bank code. This is your bank's routing number. Copy your routing number to Line 20b of Form 1040.
Now check the appropriate box on Line 20c, depending on whether you want your refund deposited into a checking or savings account. Find your account number on your check and enter this on line 20d.
Double check—even triple check!—your bank numbers. Call your bank to confirm them if you're not sure. You might not be able to get your money back if it's deposited to the wrong account.
Pay Your Balance Due Safely and Accurately
You have several options for paying the amount you owe if you have a balance due on line 22.
You can make a check payable to the United States Treasury and mail it to the IRS. Write your Social Security number followed by the four-digit tax year and 1040. The IRS will know exactly where to apply your payment with this notation. Mail the check for payment with your tax return.
You can also mail the check with the Form 1040-V payment voucher that should be printed out with your tax return if you file electronically.
Never make a check payable to the "IRS." Every so often, an IRS employee will steal these checks and alter them. "IRS" can be easily changed to "MRS SMITH," "MR. SMITH," "J.R. SMITH," or any other combination of reasonably close letters. Simply make the check payable to "United States Treasury" to prevent this. Nothing can be altered.
You can also pay your tax bill electronically, either on the internet, over the phone, or by specifying a direct debit. The IRS prefers that you make your tax payments electronically because there are no checks that can be stolen or lost in the mail, and electronic payments can be traced easily and quickly.
If you use tax preparation software, you can schedule an electronic funds withdrawal from your checking account for a day that's convenient for you, up to and including that year's tax filing deadline, which is generally on April 15. You can file your return today and schedule a future payment on or before the deadline.
You can also make payments by enrolling in the Electronic Federal Tax Payment System (EFTPS). You can schedule payments for your balance due or make estimated tax payments here, as well as monthly installment agreement payments. EFTPS is free.
IRS DirectPay is another free option. You don't have to sign up and enroll on this site, but you'll have to reenter your banking and identifying information each time you want to make a payment. The site won't save the information for you.
You can also pay your taxes by credit card, but you'll have to go through a third-party service such as Official Payments Corporation or Link2Gov. Both charge a processing fee for setting up credit card payments to the IRS. Paying by credit card is a good way to go if you want pay the IRS in full, pay off your credit card bill over time.