IRS releases draft version of Forms 1040 and 1040-SR

The Internal Revenue Service (IRS) has released a draft version of Form 1040 for tax year 2025. This early release provides practitioners with a first look at proposed changes, including notable updates such as higher standard deduction amounts, the creation of a new Schedule 1-A, Additional Deductions, for newly enacted deductions and expanded dependent information requirements. 

Increases

Standard deduction amounts increase

For 2025, the standard deduction increases again, providing taxpayers with a bit more breathing room. The updated amounts are: 

• $15,750 for single filers or those married filing separately
• $31,500 for married couples filing jointly or qualifying surviving spouses 
• $23,625 for heads of household

Catch-up contribution limits increase

Taxpayers between 60 and 64 at the end of 2025 who participate in a deferred compensation plan, such as a §401(k), §403(b) and §457 plan, may qualify for a higher catch-up limit of up to $11,250. SIMPLE and §401(k) plans catch-up increase to $5,250 for that age group.

State and local tax deduction limit increased

In 2025, the state and local tax deduction jumps to $40,000 ($20,000 for married filing separately). Once modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married filing separately), a phase out on the limit occurs. However, the deduction caps at $10,000 ($5,000 if married filing separately). 

Child tax credit and additional child tax credit are now permanent

The expanded child tax credit (CTC) and additional child tax credit (ACTC) became permanent under the recent legislation. CTC amounts increase to a maximum of $2,200 per qualifying child, with up to $1,700 as a refundable ACTC. In 2025, if filing jointly, a valid-for-work Social Security number is required for both taxpayer and qualifying children before the filing deadline (including extensions) to claim either credit.

Refundable adoption credit

Up to $5,000 of the adoption credit is fully refundable for each eligible child, computed separately for each child.

Eligible deductions

Both taxpayers who itemize and non-itemizers are eligible to use four new deductions under the new legislation:  

• No tax on tips
• No tax on overtime
• Vehicle car loan interest
• Senior deduction

Governmental paid family leave program contributions

Under Rev. Rul. 2020-03 and IRS application of IRC §§104-106, contributions made to a governmental paid family leave program must be included in income this year. These are usually shown in box 14 of Form W-2 (paid family medical leave (PFML contributions are after-tax, employee paid mandatory premiums). However, if taxpayers can use Schedule A, contributions may be included as part of their state and local tax deduction.   

Qualified farmland installment sale payments

Taxpayers can choose to pay their tax liability over four equal installments for tax years that begin after July 4, 2025, if they have a sale or exchange of qualified farmland to a qualified farmer.  

Domestic research or experimental expenditures deduction

Taxpayers may deduct rather than amortize domestic research or experimental expenses or choose to capitalize them with 60 months of amortization. 

New forms 

New Schedule 1-A

The IRS has introduced Schedule 1-A, which will be used to claim several newly-enacted deductions, including those related to tips, overtime, car loan interest and enhanced senior deductions. Instructions for the form have not been released yet.

Form 4547

The One Big Beautiful Bill Act created a new tax-deferred account for children under age 18, known as a Trump Account.  Any child under 18 who is a U.S. citizen with a Social Security number is eligible for a Trump Account. However, only those born within the specified dates will receive the initial government deposit of $1,000. 

The maximum contribution per year is $5,000 and can be made by parents or guardians. Employers can also contribute up to $2,500 per year, which will not be considered taxable income. Contributions to the account will begin in July 2026, one year after the bill’s passage. In general, withdrawals are not allowed until the child turns 18, at which point the accounts can be converted to Roth IRAs. The form, as yet unnamed, and its instructions have not been released.

Form changes and improvements

Home residency checkbox

If a taxpayer (and spouse, are filing jointly) lived in the U.S. for more than half of 2025, check a new box on the front of Form 1040 or 1040-SR. This helps the IRS verify eligibility for certain benefits, including the earned income credit.

Dependents section enhancements

The dependents section has been reorganized with numbered rows and now requests more information about the taxpayers and their dependents. These details help the IRS confirm eligibility for credits such as the CTC, credit for other dependents (ODC) and earned income credit (EIC).

Final return

If filing a return on behalf of a taxpayer who died before filing their 2025 tax return, check the new “Deceased” box and enter the date of death at the top of the return.

More dedicated entry fields

Lines that previously required free-form notations now have dedicated boxes, checkoffs or numeric fields for clarity and consistency. Notice the new check boxes for Public Safety Officer (PSO) exclusion under Pension, and under IRA, Qualified Charitable Distribution (QCD).

Electronic payments encouraged

In response to Executive Order 14247, Modernizing Payments to and From America’s Bank Account, the IRS is making a swift transition away from sending or receiving paper checks. 

The IRS encourages taxpayers to use direct deposit for refunds and electronic options, such as Direct Pay, debit/credit card, digital wallet, or online account tools, if they have access to U.S. banking or electronic payment systems. 

Form 1099-K threshold update

Under recent legislation, payment processors will only issue Form 1099-K only if total business transactions exceed $20,000 and the total number of transactions exceeds 200.

Form 1099-DA for digital asset sales

If a broker facilitates a sale of digital assets in 2025, they should issue Form 1099-DA, Digital Asset Proceeds from Broker Transactions, listing the gross proceeds (the amount realized from the sale/exchange). Brokers are not required to report the cost basis or gain/loss (transaction details) until on or after Jan. 1, 2026. Until then, taxpayers may need to keep their own records to determine cost basis, because of the optional broker reporting for 2025. Keep in mind, digital asset transactions must still be reported and the digital asset question on Form 1040/1040-SR must be answered, even if the taxpayer does not receive any forms.