For an estimated 60 percent of the state's taxpayers, Rhode Island offers a streamlined income-tax form.

09:44 AM EST on Tuesday, December 20, 2005

BY NEIL DOWNING
Journal Staff Writer

PROVIDENCE -- Thousands of Rhode Island taxpayers will soon find something new in the mail -- a shorter and less-complicated state income-tax form that should be easier and faster to complete.

Known as the Rhode Island Form 1040EZ, it is geared toward people whose tax picture is comparatively straightforward.

The state tax agency will still distribute the standard Rhode Island Form 1040. But most taxpayers will qualify for the 1040EZ and will probably prefer to use it, said Michael F. Canole, chief revenue agent at the tax agency's personal income-tax section.

Overall, the tax agency expects that about 60 percent of all resident returns -- about 300,000 out of about 500,000 -- will be filed on the new Form 1040EZ, either on paper or electronically, Canole said in an interview at agency headquarters in Providence.

The Form 1040EZ is two pages on a single sheet of paper, compared with the standard Form 1040, which can run to eight pages on four sheets, counting certain supporting schedules.

"Many taxpayers do not have the need for these pages and schedules" on the standard Form 1040, Canole said. Thus, many taxpayers will use the easier form, he said.

Because of the way the form is set up, it will be best "for very simple returns," said Joseph P. Matoney, an accounting professor at the University of Rhode Island's College of Business Administration.

So it will be best suited for those whose main or only sources of income are from wages (from a Form W-2) and interest from a bank or credit-union account, Matoney said.

But he cautioned that the new form may encourage some people to do their own returns, and do them too quickly, triggering mistakes "because they'll underestimate the complexity," Matoney said in an interview at URI's campus in Kingston.

The complexity of the underlying tax system is more important than how many pages are included on a form -- and the Rhode Island income-tax system remains complex, said Mark Higgins, an accounting professor at URI and coauthor of Concepts in Federal Taxation.

"It's the numbers that go into the blocks, and the numbers behind them" that are important, Matoney said.

Canole said that, in general, taxpayers may use the new Form 1040EZ under the following conditions:

* They are Rhode Island residents.

* They do not have any "modifications" to report on their Rhode Island return that would affect the amount of their income subject to Rhode Island income tax -- such as interest from U.S. Treasury securities or U.S. Savings Bonds.

* They do not claim special tax credits.

* They do not have capital gains to report and are not subject to the alternative minimum tax.

(The full list of conditions is listed in the booklet that accompanies the new form.)

The tax ageny expects to save money in printing, processing, storage and other costs because the Form 1040EZ is shorter than the standard form, Canole said.

One bonus of the Form 1040EZ is that older Rhode Island residents with straightforward tax pictures will generally be able to use it.

In recent years, older residents claiming the special Rhode Island standard deduction for people 65 and older and the blind had to search through several pages to find the appropriate schedule. The Form 1040EZ includes that schedule, Canole said.

The Form 1040EZ also includes a schedule used by taxpayers who claim the Rhode Island earned income credit (essentially a tax break geared to the working poor).

Taxpayers who seek a "rebate" of up to $250 under the statewide property-tax relief program will also generally be able to use the Form 1040EZ (although they'll have to attach a copy of the proper form, 1040H).

But those with capital gains (from the sale of stock, for example) and those with capital gains distributions (from mutual funds) will have to use the longer form, Canole said.

State income-tax booklets, which are now being printed, should be ready for shipment to the Postal Service late next week, Canole said. The booklets should start arriving in mailboxes early next month, he said.

Following is a look at the numbers involved.

The state plans to mail 95,593 tax booklets. (Of these, nearly 63,000 will contain the Form 1040EZ, nearly 22,000 will include the longer, standard form, and about 11,000 will be for nonresidents.)

The state plans to mail 186,032 "reminders," known as notification postcards. For the most part, these go to people who did not use the state's pre-printed form last filing season, or asked not to receive a booklet this time.

But 277,314 taxpayers will receive neither a tax booklet nor a notification this time. (That is up from about 228,600 a year ago.)

Fewer booklets and postcards will go out this time mainly because of the sharp increase in electronically filed returns, Canole said.

The state tax agency received about 185,000 electronically filed returns this year, up from about 129,000 last year, an increase of about 44 percent, he said.

Canole also said that, in mid-January, the state plans to begin mailing about 15,600 property-tax relief forms. These will generally go to people who filed that form alone last year, without also filing a state income-tax return.

Canole said that new Rhode Island forms should be available online by Jan. 1:

www.tax.ri.gov