Filing taxes on IRS Free File as a W-2 individual

Filing taxes can be a real pain- using tax software or hiring a professional. In 2020, I decided to read the Individual 1040 tax instructions with the goal to file my taxes for FREE! I do not qualify to use approve software for free because I earn over the free income limit of $39K per year. However, the IRS provides a free file form for individuals earning over 72K per year but there are no prompts or cheat sheet to save you money on taxes.

Knowledge is power!

I started by reading the 1040 individual instructions and soon realized why so many earners shy away- it’s complicated for people with more than a standard deduction. The standard deduction for 2020 is $12,400 plus you can add charitable contributions to 10b on Form 1040 up to $300 for single.

Factors that impacted my return

• Contributions to Health Saving Account (HSA),
• Sale of Employee Stock Purchase Plan (ESPP),
• Qualified Dividends,
• Interest received,
• Charitable Contributions- non-cash value and cash value

My Forms Received & Explained

1. W-2 from my employer- line 1- 11 is self-explanatory but for me line 12 wasn’t. Line 12 explained — W is Employer contributions (including amounts the employee elected to contribute using a Section 125 cafeteria plan) to your health savings account (HSA). AA is the designated Roth contribution under a 401(k) plan. DD is the cost of employer-sponsored health coverage.
2. 1099-SA is the distribution to Health Saving Accounts.
3. 1099-INT is the interest received more than $10 from financial institutions such as a bank.
4. 1099-DIV is the dividends and distribution received from owning stocks.
5. 1099-B is an outline of the proceeds from broker and barter transactions i.e. sale of stocks in ESPP.
6. 3922- Transfer of stock acquired through an ESPP under Section 423 (2). Once you participate in ESPP, you’ll receive this form that outlines the date the shares were purchased on your behalf, fair market value of shares and the amount your paid per share.
7. 1098 is Mortgage Interest statement outlining interest paid, property taxes paid and private mortgage insurance paid. This information will be use if you’re itemizing your deduction.
8. 1095-C is the employer-provided health insurance offer and coverage. It outlines the contribution paid. If your medical bills is not over 10% of your Annual Gross Income (AGI), this form doesn’t matter if you’re taking a standard deduction.

How I reported/translated forms to my Form 1040

• Line 1- the amount on line 1 on your W2.
• Line 2- interest on line 1 on your 1099-INT.
• Line 3b- dividends found on line 1a 1099-DIV. I received two 1099-DIV so I combined both figures to report here.
• Line 7- using 1099-B and 3922 complete Form 8949 (Sales and Other Dispositions of Capital Assets) for short-term (1 year or less) and long-term transaction (1 year and 1 day) and Schedule D (Gain & Losses).
• Line 9-Addition of lines 1, 2b, 3b & 7 was my total income.
• Line 10a- complete Form 8889 (Health Saving Accounts HSAs) & Schedule 1 (Additional Income and Adjustments to Income) to report HSA contribution. HSA contributions are tax free.
• Line 10b- Charitable cash contributions given to a qualified organization and I deducted mileage for volunteering at a non-profit organization.
• Line 10c- adjustments to income, addition of lines 10a & 10b.
• Line 11 —adjusted gross income (AGI), deduct lines 10c from line 9.
• Line 12- I took the standard deduction because the amount on 1098 plus medical and dental expense, taxes I paid and charitable gifts did not surpass the $12,400.
• Line 14- addition of line 12 & 13.

I was burned out after reading how many forms I need to complete!

• Line 15- taxable income, deduct line 14 from line 11.
• Line 16- I completed Schedule D (Form 1040) Tax Worksheet (2020) to calculate the amount of tax.
• Line 24 — total tax, it was the same amount on line 16.
• Line 25a- amount reported on line 2 of my W-2.
• Line 25b- any federal taxes withheld and reported on 1099. This was zero on my 1099 (line 4).
• Line 25d- addition of 25a and 25b.
• Line 33- Add lines 25d, 26, and 32. I only had a figure on line 25d.
• Line 34- If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid. It was a refund in my case…YAY!

Navigating Free File

All the forms mentioned above can be added to Free File on IRS website. I had to manually enter my W-2 information as an attachment to my return. There is an option to save your progress and complete it at a later date. If you’re planning to use IRS Free File it was open as of Feb 12, 2021 and there is an option to file an extension as well. This website can only be used for file federal taxes.

I submitted my federal taxes on Feb 25, 2021, I received confirmation that my federal tax return was successfully transmitted and accepted on the same day. I got my refund in less than TWO WEEKS i.e. March 5, 2021.

Disclaimer: I’m not a tax advisor and this for for entertainment purposes only.