Dusting off The Package X - 1981

1981 - Ronald Reagan was in the Oval Office, the Iran Hostage Crises ended, Lady Di and Charles wed, Major League baseball had a 50 day work stoppage an individual income tax return looked like this.

Fast Facts

Filing requirements
Single $3,300
MFJ 5,400
MFS 1,000
Qualifying widower 4,400
The age of 65 and over afforded you an additional $1,000 before the filing requirements were met.

Tax rates.
There are no fewer than 15 tax brackets ranging from 14% to 70%. These rates take into account a rate reduction that was new for 1981. Not all tax statuses have the same bracket structure. Single taxpayers making over $108,300, heads of household over 161,300 and MFJ over 215,400 only kept 30 cents of each additional dollar they earned. I would be afraid to see what some state income taxes did to these earners.

New Changes for 1981
The rates were changed as mentioned above. Also, more people could qualify for the 1040A short form because the interest and dividend ceiling was removed. For those 55 and over, $125,000 of gain from the sale of your principal residence could be excluded. If memory serves correctly, I believe this was a once in a lifetime exclusion.

Sectional Overview

The 1981 1040 looks similar in form to the modern day version. It is two pages in length and broken down into the following 10 main sections: Filing Status, Exemptions, Income, Adjustments to Income, Adjusted Gross Income, Tax Computation, Credits, Other Taxes, Payments and Refund or Balance Due.

The Filing Status has the same five choices as the 2009 1040. The main difference in the Exemptions section is the box for being over the age of 65 and blind is contained here whereas the 2009 version has these boxes in the Taxes and Credit section.

The main difference in the Income section is the omission of Social Security benefits. Social Security benefits won’t become reportable until 1984. The Adjustment to Income has grow over the last several decades. The one thing deductible above the line in 1981 that is now below the line is an adjustment for employee business expenses (Form 2106). Employee business expenses are now an itemized deduction on schedule A subject to 2% of adjusted gross income.

Adjusted Gross Income earned Its own section on the ‘81 form. It also contained a reminder for the ‘Earned Income Credit’ if the amount was under $10,000. That seems low by 1981 standards.

Two things earn mention in the Tax Computation section. First, there is no standard deduction. Itemized deductions are reduced by an amount corresponding to the taxpayer’s filing status. The other thing about this section is the Schedule G check box. This schedule is for ‘Income Averaging’. If your income fluctuated from one tax year to the next, you could calculate your averaged income over multiple years if it saved you taxes. This was important when marginal tax rates were 70%.

There was actually a credit for contributions to candidates for public office! Granted the credit was for only one-half of your expenditures up to 50$ ($100 MFJ). For those of us rankled by ‘spending disguised as a tax credit’, having politicians subsidize the giving to their campaigns from their constituents is somewhat surprising. At least, it wasn’t refundable.

The other taxes, Payments and Refund or Balance Due sections are similar in function to the 2009 form. In 1981, there were refundable credits for taxes on special fuels, Regulated Investment Company credits and Overpaid Windfall Profit taxes.

In the coming days a weeks I hope to give a brief overview of changes to each year’s tax forms. Next up 1982.