Certain taxpayers have tax, income, or credits not included in Form 1040. But, these extra elements must be declared on the taxpayer’s tax return. This is where Schedules 1, 2, and 3 steps in.
What Are The Schedules 1 & 2, And 3?
Schedules 1, 2, and 3 are documents that are added to which are included in a taxpayer’s tax filing package even if they’re not completed.
Scheduling 1
The supplemental Income, Adjustments, and Income form includes two parts. Schedule 1 is a part of your tax return, even if the form is blank. Taxpayers with a simple income, such as a W2 or perhaps some stocks, do not need to fill out Schedule 1.
For those with more income sources or more complicated income sources, A Schedule 1 will likely be used. Additional forms/worksheets may be utilized in conjunction with Schedule 1. The results from additional forms will be reflected in Schedule 1.
The first section of Schedule 1 is the Additional income. It could be gambling, alimony, business revenues, tax refunds, debt cancellation, and much more. The income from Part I is tallied and reported on Form 1040.
Part II deals with adjustments to income. It covers eligible expenses as well as deductions which are offset by the income of Part I. The adjustments are added up at the end of Part II. They appear on Form 1040.
Schedule 2
The Schedule 2 form is used to report additional Taxes. As with Schedule 1, this form can be blank, but it is included in your 1040. It’s a two-page form that has two sections.
Part I, called a tax, focuses on an alternative tax (AMT) and the excess advance premium tax credit repayment linked with ACA medical insurance benefits. These two numbers are added to Form 1040. This is all in Part I.
Part II covers a broad spectrum of Other Taxes, which are not part of the two tax categories mentioned above. This includes taxes on self-employment, HSA, net investment income tax, interest linked to Form 8621, and various other taxes. These amounts are then added to and transferred to Form 1040.
Schedule 3
Schedule 3 is called Addition Credits and payments. The form also has two pages long and contains two sections.
Part I is called Non-Refundable Credits. Non-refundable credits can reduce your tax burden; however, you cannot receive the benefit of a refund (i.e., direct deposits or checks). But the credits can be offset dollar for dollar.
Credits not refundable in this section include credits associated with education, retirement contributions and adoption, residential energy and electric vehicles, and much more. All credits are added at the end of the form and then transferred to Form 1040.
Part II is called Other Credits Refundable and Payments. Similar to Schedules 1 and 2, Part II is an umbrella. The line items included in Part II have a net premium tax credit, health insurance tax credits, and the deferred amount of tax net 965 obligations. The bottom section is also a sum of all lines. It is transferred to Form 1040.
What Are They Used For?
In 2018 the IRS decided to make it easier or at the very least reduce the size of Form 1040. Before the year 2018, there were several 1040s like the Form 1040A and 1040EZ. Both forms were replaced by the compact Form 1040.
The IRS could reduce Form 1040 by removing certain particulars from the form. Instead of a lengthy form, taxpayers now have an even shorter form. Some of the information extracted from Form 1040 made it into Schedules 1, 2, and 3.
In the case of certain information appearing on these schedules, just the totals from each schedule were required for Form 1040. This allows taxpayers to understand the most important numbers like totals on Form 1040 without getting overwhelmed or confused by the many particulars.
This doesn’t mean that filing your tax return is any easier. The information you provide is still needed in a tax dispute, and that’s why it’s recommended to consult an expert tax accountant when you file your tax returns.
