Form 1040 Schedule 3: Additional Credits and Payments (2020) – A Simple Guide
What Form 1040 Schedule 3 Is For
Schedule 3 is an attachment to your main Form 1040 or 1040-SR tax return that captures tax credits and payments that don't fit on the main form. Think of it as the ""extras"" page where you claim additional tax breaks and report certain payments you've already made. The schedule has two main sections: Part I covers nonrefundable credits that reduce your tax bill (but can't create a refund), and Part II covers other payments you've made and refundable credits that can actually put money back in your pocket even if you owe no tax. Common items include foreign tax credits, education credits, energy efficiency credits, health insurance premium tax credits, and amounts you paid when requesting a filing extension. You'll attach this schedule to your tax return only if you have something to report on it—otherwise, you can skip it entirely.
When You’d Use Form 1040 Schedule 3
Including late or amended returns
You'll use Schedule 3 when filing your original 2020 tax return if you qualify for any of the credits or have any of the payments listed on the form. The original deadline for 2020 returns was May 17, 2021 (extended from the usual April 15 due to pandemic relief). If you're filing late or need to file an amended return using Form 1040-X, you would still complete Schedule 3 if you're claiming these credits for the first time or correcting amounts previously reported. Starting with tax year 2019, you can electronically file certain amended returns, though the IRS began accepting e-filed Form 1040-X for 2019 returns first, with plans to expand. You might file an amended return with Schedule 3 if you discovered you were eligible for a credit you didn't originally claim, if you received corrected tax documents (like a corrected W-2c showing excess Social Security tax withholding), or if you need to reconcile health insurance premium tax credits after receiving your Form 1095-A from the Health Insurance Marketplace. Remember that if you've never claimed certain credits before or had them denied in a prior year, you may need to complete additional forms like Form 8862 to establish eligibility again.
Key Rules or Details for 2020
How nonrefundable and refundable credits work
Schedule 3 operates under several important rules. First, nonrefundable credits in Part I can only reduce your tax to zero—they won't generate a refund if you have no remaining tax liability. Refundable credits in Part II, however, can result in a refund even if you owe no tax.
Required supporting forms and documentation
Almost every line on Schedule 3 requires you to complete and attach a separate form as documentation—for example, Form 1116 for foreign tax credits, Form 8863 for education credits, or Form 8962 for the premium tax credit.
Coordination with other deductions
You cannot claim both a nonrefundable education credit and the tuition and fees deduction for the same student and the same expenses.
Income limits and phaseouts
Many credits have income limits that phase out or eliminate the credit if your adjusted gross income exceeds certain thresholds. For example, the retirement savings contributions credit isn't available if your income exceeds $32,500 for single filers or $65,000 for married filing jointly.
Foreign tax credit simplified exception
The foreign tax credit has a simplified reporting exception: you can claim it without Form 1116 only if your foreign taxes were $300 or less ($600 if married filing jointly), all foreign income came from interest and dividends reported on Forms 1099, and several other conditions are met.
Premium tax credit and 2020 ARPA changes
The premium tax credit on line 8 requires reconciliation with any advance payments made through the Health Insurance Marketplace—if too much was advanced to you, you may need to repay it. For 2020 specifically, the American Rescue Plan Act later suspended excess advance premium tax credit repayments, though this wasn't reflected in the original form.
Step-by-Step (High Level)
Part I – Nonrefundable credits (lines 1–7)
Start by gathering all relevant forms and documentation for any credits or payments you're claiming. For Part I (Nonrefundable Credits), work through lines 1 through 6, completing the required supporting forms first. If you paid foreign taxes, complete Form 1116 (or use the simplified exception). If you paid for child or dependent care while working, fill out Form 2441. For education expenses, use Form 8863 to calculate your American Opportunity Credit or Lifetime Learning Credit. If you contributed to a retirement account and have modest income, complete Form 8880 for the Saver's Credit. For residential energy improvements like solar panels, use Form 5695. Line 6 requires you to check boxes for any other nonrefundable credits and enter the total from forms like 3800 (general business credit), 8801 (prior year minimum tax), or others. Add lines 1 through 6 and enter the total on line 7, which transfers to Form 1040 line 20.
Part II – Other payments and refundable credits (lines 8–13)
For Part II (Other Payments and Refundable Credits), move to lines 8 through 13. If you had health insurance through the Marketplace, complete Form 8962 and enter your net premium tax credit on line 8. On line 9, enter any payment you made with your extension request (Form 4868). Line 10 is for excess Social Security or railroad retirement tax if you worked for multiple employers and total withholding exceeded $8,537.40. For fuel tax credits from nontaxable use, complete Form 4136 for line 11. Line 12 has several sub-parts for special situations: sick and family leave credits from COVID-19 relief (using Schedule H or Form 7202), certain tax deferrals under the CARES Act, and other specific payments. Add lines 8 through 12 and enter on line 13, which transfers to Form 1040 line 31. Double-check that you've attached all required forms, signed everything, and that your arithmetic is correct before filing.
Common Mistakes and How to Avoid Them
Missing supporting forms
One of the most frequent errors is forgetting to attach required supporting forms—Schedule 3 is essentially a summary page, and without the documentation forms like 8863, 1116, or 4136, the IRS will likely reject or delay your credit claims.
Double-dipping education benefits
Another common mistake is trying to claim both an education credit and the tuition and fees deduction for the same student and expenses; you must choose one or the other.
Exceeding income thresholds
Many taxpayers incorrectly claim credits when their income exceeds the eligibility threshold, so always verify the adjusted gross income limits for each credit before completing the forms.
Excess Social Security tax withholdings
On line 10 (excess Social Security tax), a frequent error is attempting to claim a refund when a single employer over-withheld—if you had only one employer, you must request the refund from that employer, not through the IRS.
Foreign tax credit exception errors
When claiming the foreign tax credit without Form 1116 under the simplified exception, people often overlook one of the required conditions, such as not holding the stock long enough or exceeding the $300/$600 limit.
Including fees in extension payments
For line 9, some filers mistakenly include convenience fees charged by credit card processors when they paid by card—only include the actual tax payment amount, not the processing fee.
Premium tax credit reconciliation errors
When claiming the premium tax credit, failing to attach Form 8962 or miscalculating the reconciliation between advance payments and the actual credit amount causes processing delays and potential repayment requirements.
Math errors and missing Form 8862
Math errors are surprisingly common, especially when adding multiple credit amounts, so use tax software or double-check your addition carefully. Finally, if you've had a credit denied in a prior year (especially earned income credit, child tax credit, or education credits), you may need to file Form 8862 before claiming it again, and forgetting this form will result in denial of your current-year claim.
What Happens After You File
How the IRS processes Schedule 3
Once you submit your return with Schedule 3 attached, the IRS processes it by matching the information against documents filed by employers, financial institutions, and the Health Insurance Marketplace, such as Forms W-2, 1099, and 1095-A. The computer systems check for mathematical errors, verify that required forms are attached, and screen for credits claimed outside eligibility parameters. If everything checks out, your nonrefundable credits from Part I reduce your tax liability as shown on Form 1040 line 20, while your refundable credits and payments from Part II either increase your refund or reduce your balance due as shown on line 31. Most electronically filed returns process within 21 days, though paper returns take longer. If the IRS identifies an error, omission, or questionable item, you'll receive a notice—this could be anything from a simple CP2000 notice proposing a change to a request for additional documentation. Credits that reduce your refund or increase your balance owed will be explained in these notices.
Consequences of improper credit claims
If you claimed certain credits improperly—particularly the earned income credit, child tax credit, additional child tax credit, or American Opportunity Credit—the IRS may disallow them and require you to complete Form 8862 before claiming them again. Reckless or intentional disregard of the rules can result in a ban from claiming those credits for two years, while fraudulent claims can lead to a ten-year ban plus penalties and potential criminal prosecution. For refundable credits like the premium tax credit, the IRS checks that advance payments were properly reconciled; if you received more in advance than you were entitled to, you may need to repay the excess (though the American Rescue Plan Act suspended these repayments for 2020). You can check your refund status using the ""Where's My Refund?"" tool on IRS.gov or the IRS2Go mobile app about 24 hours after e-filing or four weeks after mailing a paper return. If you're audited, you'll need to provide documentation proving eligibility for the credits you claimed, such as receipts for dependent care expenses, tuition statements for education credits, or foreign tax payment records.
FAQs
Do I need to file Schedule 3 if I only have the Child Tax Credit?
No. The Child Tax Credit and Credit for Other Dependents are claimed directly on Form 1040 line 19 and don't require Schedule 3. You only need Schedule 3 for additional credits not captured on the main form, such as education credits, foreign tax credits, or energy credits.
Can I claim the foreign tax credit without filing Form 1116?
Yes, but only if you meet all the requirements for the simplified exception: your foreign taxes must be $300 or less ($600 if married filing jointly), all foreign income must be from interest and dividends reported on Forms 1099-INT or 1099-DIV, you held the assets producing the income for at least 16 days, and the taxes were paid to countries not designated as supporting terrorism. If any condition isn't met, you must file Form 1116.
What's the difference between nonrefundable and refundable credits on Schedule 3?
Nonrefundable credits in Part I can reduce your tax bill to zero but cannot create or increase a refund—if you have $500 in tax and claim $800 in nonrefundable credits, your tax drops to zero but you lose the extra $300. Refundable credits in Part II can generate a refund even if your tax is already zero—they're treated like payments you've already made, similar to tax withholding from your paycheck.
I paid for my daughter's college tuition—do I report this on Schedule 3?
Yes, if you're claiming an education credit. First complete Form 8863 to calculate your American Opportunity Credit or Lifetime Learning Credit, then enter the amount on Schedule 3 line 3. Make sure your income doesn't exceed the limits and that you're not also claiming the tuition and fees deduction for the same expenses.
What if I had two jobs and both employers withheld Social Security tax?
If the total Social Security tax withheld exceeded $8,537.40 for 2020 because you had multiple employers, you can claim the excess on Schedule 3 line 10. Add up all the Social Security wages from your Forms W-2, and if the total tax withheld was more than the maximum, you get the difference back as a refund. However, if one employer took out too much, you must get that refund from the employer, not the IRS.
I got health insurance through the Marketplace and received Form 1095-A—do I have to file Schedule 3?
Yes, if advance premium tax credit payments were made on your behalf. You must complete Form 8962 to reconcile the advance payments with your actual premium tax credit for the year, then report the result on Schedule 3 line 8. You cannot file your tax return without this reconciliation, even if you don't owe anything back.
What happens if I forgot to include a required form like Form 8863 with my Schedule 3?
The IRS will likely send you a notice requesting the missing form or may disallow the credit entirely. This delays your refund and requires you to respond with the documentation. It's always better to attach all required forms when you initially file to avoid these delays and potential credit denials.
