What Are Schedules 1, 2, and 3 on Tax Form 1040 and What Are They Used For?

Posted Mar 1, 2024


Some taxpayers will have income, taxes, and credits that are not included in Form 1040. However, these additional items need to be declared on the taxpayer’s tax return. That’s where Schedules 1, 2, and 3 come in.

What Are Schedules 1, 2, and 3?

Schedules 1, 2, and 3 are supplemental documents that are part of a taxpayer’s income tax filing package, even if they aren’t filled out.

Schedule 1

This form is titled Additional Income and Adjustments to Income and has two parts. Schedule 1 is included with your tax return, even if it is blank. For taxpayers with simple income, such as a W2 and maybe some stock investments, they probably don't need to fill out a Schedule 1.

For those with more income sources or complex income sources, Schedule 1 will probably be used. Other forms/worksheets can be used with Schedule 1. The values from any additional forms will flow through to Schedule 1.

The first part of Schedule 1 is Additional Income. This can include alimony, gambling, business revenue, tax refunds, debt cancellation, and more. Part I income is totaled and reported on Form 1040.

Part II is Adjustments to Income. It includes eligible expenses and deductions that offset Part I income. These adjustments are totaled at the bottom of Part II and go on Form 1040.

Schedule 2

Schedule 2 is for Additional Taxes. Like Schedule 1, this form may be blank but included in your 1040. It is a two-page form in two parts.

Part I is titled Tax and is for the alternative minimum tax (AMT) and excess advance premium tax credit repayment, which is related to ACA health insurance credits. These two values are added and transferred to form 1040. That’s it for Part I.

Part II covers a broad range of Other Taxes outside the two mentioned above. These include self-employment taxes, HSA, net investment income tax, interest related to Form 8621, and many other taxes. This section adds and transfers amounts to Form 1040.

Schedule 3

Schedule 3 is titled Additional Credits and Payments. This form is also two pages and has two parts. 

Part I is titled Nonrefundable Credits. A nonrefundable credit can offset your tax liability, but you can't receive a refund (i.e., direct deposit or check). However, these credits are dollar-for-dollar offsets. 

Nonrefundable credits in this section include education, retirement contributions, residential energy, adoption, an electric vehicle, and more. All credits are added at the bottom of the form and transferred to Form 1040.

Part II is titled Other Payments and Refundable Credits. As with Schedules 1 and 2, Part II is a catch-all. Some line items in Part II include the net premium tax credit, health coverage tax credit, and the deferred amount of net 965 tax liability. The bottom of this section is also a total of all line items and is transferred to Form 1040.

What Are They Used For?

In 2018, the IRS decided to simplify or shrink Form 1040. Previous to 2018, there were different tax forms such as Form 1040A and Form 1040EZ. Those two forms have been replaced with the compact Form 1040.

The IRS shrank Form 1040 by moving some details out of the form. Instead of a long form, taxpayers have a shorter form. Some of those details moved out of Form 1040 and found their way into Schedules 1, 2, & 3. 

With certain details incorporated into these schedules, only the totals from each schedule were needed on Form 1040. This makes it easier for taxpayers to read important values, such as totals, on Form 1040 without getting bogged down or confused by too many details.

It doesn’t mean filing your tax return has become simpler. Those details are still required where applicable, which is why it's advisable to work with a tax professional when filing your taxes.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Examples shown are hypothetical and for illustrative purposes only.

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