Form 1040 Schedule 3: Nonrefundable Credits (2018) – A Simple Guide
Form 1040 Schedule 3 is a supplemental attachment to your 2018 Form 1040 tax return that allows you to claim nonrefundable tax credits beyond the basic child tax credit and credit for other dependents. Think of nonrefundable credits as special discounts on your tax bill—they can reduce the amount of tax you owe all the way down to zero, but they can't get you a refund beyond what you've already paid through withholding or estimated payments.
The 2018 tax year marked a significant redesign of Form 1040, breaking what used to be a longer form into a simpler base form supplemented by six numbered schedules. Schedule 3 specifically handles the "additional credits" category, including credits for foreign taxes you paid, child and dependent care expenses, education costs, retirement savings contributions, residential energy improvements, and various specialized credits like the mortgage interest credit or adoption credit. If you qualify for any of these credits, you'll complete Schedule 3 and attach it to your main Form 1040. The total from Schedule 3 then transfers to Form 1040, line 12, directly reducing your tax liability.
What Form 1040 Schedule 3 Is For
Form 1040 Schedule 3 is a supplemental attachment to your 2018 Form 1040 tax return that allows you to claim nonrefundable tax credits beyond the basic child tax credit and credit for other dependents. Think of nonrefundable credits as special discounts on your tax bill—they can reduce the amount of tax you owe all the way down to zero, but they can't get you a refund beyond what you've already paid through withholding or estimated payments.
The 2018 tax year marked a significant redesign of Form 1040, breaking what used to be a longer form into a simpler base form supplemented by six numbered schedules. Schedule 3 specifically handles the "additional credits" category, including credits for foreign taxes you paid, child and dependent care expenses, education costs, retirement savings contributions, residential energy improvements, and various specialized credits like the mortgage interest credit or adoption credit. If you qualify for any of these credits, you'll complete Schedule 3 and attach it to your main Form 1040. The total from Schedule 3 then transfers to Form 1040, line 12, directly reducing your tax liability.
When You'd Use Form 1040 Schedule 3 (Including Late or Amended Returns)
You'll use Schedule 3 when filing your original 2018 tax return if you're eligible for any nonrefundable credits beyond the standard child tax credit. The original deadline for 2018 returns was April 15, 2019 (or April 17 for Maine and Massachusetts residents due to state holidays). If you missed that deadline but didn't file, you should still file as soon as possible—especially if you're entitled to a refund, as you generally have three years from the original due date to claim it.
If you discover after filing your original 2018 return that you forgot to claim a credit on Schedule 3, or if you made an error in calculating a credit, you can file an amended return using Form 1040-X. To amend for a missed credit, you must file Form 1040-X within three years after filing your original return or within two years after paying the tax, whichever is later. When amending, you'll attach the corrected or new Schedule 3 to Form 1040-X, showing the changes in the designated columns. It's important to note that amended returns typically take eight to twelve weeks to process, considerably longer than original returns.
You might also need to file or amend Schedule 3 if you received additional documentation after filing—for example, if you later received a Form 1099-DIV showing foreign taxes paid that qualify for the foreign tax credit, or if you discovered qualifying education expenses you hadn't originally claimed.
Key Rules or Details for 2018
Refundable vs. Nonrefundable Credits
Understanding a few core concepts will help you navigate Schedule 3 successfully. First, grasp the difference between refundable and nonrefundable credits. Refundable credits (like the earned income credit) can generate a refund even if you owe no tax. Nonrefundable credits on Schedule 3 can only reduce your tax to zero—any excess credit beyond your tax liability is generally lost, with limited exceptions for carryforwards on certain credits.
Supporting Forms Required
Second, most credits on Schedule 3 require you to complete and attach a separate detailed form. For instance, if you're claiming the foreign tax credit, you'll typically need Form 1116; for education credits, Form 8863; for child and dependent care expenses, Form 2441; and for residential energy credits, Form 5695. You can't simply enter a number on Schedule 3 without the supporting documentation—the IRS needs to see your calculations and verify your eligibility.
Income Phase-Outs and Limitations
Third, be aware of income phase-outs and limitations. Several credits have adjusted gross income (AGI) thresholds above which the credit is reduced or eliminated. The education credits, for example, begin phasing out at $90,000 of AGI ($180,000 for married filing jointly), while the retirement savings contributions credit (Saver's Credit) has even lower thresholds of $31,500 for single filers.
Eligibility Requirements for Specific Credits
Fourth, understand that credits have specific eligibility requirements beyond income limits. For the child and dependent care credit, the care must be work-related, and you must provide the care provider's identifying information. For education credits, the expenses must be for qualified tuition and related fees at eligible institutions, and you can't claim both the education credit and the tuition and fees deduction for the same student. The foreign tax credit requires that you actually paid or accrued foreign income taxes to a country recognized by the United States.
Recordkeeping and Documentation
Finally, keep meticulous records. Save receipts, statements, and documentation for any expenses underlying these credits for at least three years after filing, as the IRS may request verification.
IRS.gov Credits and Deductions
Step-by-Step (High Level)
How to Complete Schedule 3 (High Level)
Step 1: Determine Your Eligibility
Before filling out Schedule 3, review each credit to see which ones you qualify for. Read through the instructions for lines 48-54 in the Form 1040 instructions, and check the specific requirements for each credit you think you might claim.
Step 2: Complete Required Supporting Forms First
Schedule 3 is essentially a summary sheet—the real work happens on the supporting forms. If you're claiming the foreign tax credit without Form 1116 (the simplified method), verify you meet all five listed requirements. Otherwise, complete Form 1116. For education credits, fill out Form 8863. For child and dependent care, complete Form 2441. For residential energy credits, work through Form 5695. For other specialized credits, complete the relevant forms (Form 8880 for Saver's Credit, Form 8839 for adoption credit, Form 3800 for general business credit, etc.).
Step 3: Transfer Amounts to Schedule 3
Once your supporting forms are complete, transfer the appropriate amounts to the corresponding lines on Schedule 3. Line 48 receives your foreign tax credit, line 49 gets the amount from Form 2441 for dependent care, line 50 shows education credits from Form 8863 (line 19), line 51 takes the Saver's Credit from Form 8880, line 53 gets residential energy credits from Form 5695, and line 54 captures other credits with their identifying information.
Step 4: Total Your Credits
Add lines 48 through 54 and enter the sum on line 55. This is your total nonrefundable credits.
Step 5: Transfer to Form 1040
Take the amount from Schedule 3, line 55, and enter it on Form 1040, line 12. Check the box on Form 1040 indicating that Schedule 3 is attached.
Step 6: Attach Everything
When filing, attach Schedule 3 behind Form 1040, followed by all supporting forms in numerical order (Form 1116, Form 2441, Form 5695, Form 8863, Form 8880, etc.). If filing electronically, your tax software handles the attachment automatically.
Common Mistakes and How to Avoid Them
Forgetting to Attach Supporting Forms
Even careful taxpayers frequently make errors on Schedule 3. Here's how to avoid the most common pitfalls:
The most frequent mistake is entering a credit amount on Schedule 3 without attaching the required form. If you claim the foreign tax credit requiring Form 1116, education credits, dependent care credit, or energy credits, you must attach the supporting documentation. Without it, the IRS will likely disallow your credit. Solution: Create a checklist of all forms you need to attach before mailing or e-filing.
Incorrectly Calculating the Foreign Tax Credit Simplified Method
Many taxpayers think they can always claim foreign taxes without Form 1116, but the exception applies only when all five specific conditions are met—including that foreign taxes don't exceed $300 ($600 if married filing jointly) and meet other strict requirements. If you claim the credit without Form 1116 when you don't qualify for the exception, the IRS may reject your credit. Solution: Carefully read all five requirements and complete Form 1116 if even one doesn't apply.
Double-Dipping on Education Benefits
You cannot claim an education credit and also deduct tuition and fees on Schedule 1, line 34, for the same student and same expenses. This is a clear violation that the IRS catches regularly. Solution: Calculate both ways and choose the option that gives you the greater tax benefit—but only claim one.
Missing Income Limitations
Many taxpayers claim credits without checking whether their income exceeds the phase-out threshold. For instance, if your AGI exceeds $90,000 ($180,000 if married filing jointly), your education credits may be reduced or eliminated. Solution: Check the income limitations in the instructions for each credit before calculating it.
Providing Incomplete Information
For the dependent care credit, you must provide the care provider's name, address, and tax identification number (EIN or SSN). Missing this information can delay processing or result in credit denial. Similarly, for education credits, you need information from Form 1098-T from your educational institution. Solution: Gather all required documentation before beginning your return.
Not Checking the Correct Boxes
Line 54 requires you to check boxes for the specific credits you're claiming and to identify them. Forgetting to check boxes or provide credit descriptions makes it hard for the IRS to process your return and may trigger correspondence. Solution: Carefully read the line 54 instructions and check all applicable boxes.
Math Errors in Totaling
Simple addition mistakes when totaling lines 48-54 are surprisingly common. Solution: Double-check your math, use a calculator, or better yet, use tax preparation software that calculates automatically.
What Happens After You File
Once you mail or electronically file your Form 1040 with Schedule 3 attached, the IRS begins processing your return. For electronically filed returns, this typically takes about 21 days, while paper returns can take six weeks or more. During processing, the IRS computer systems verify the information you've reported, match it against third-party documents (like W-2s, 1099s, and 1098-Ts), and check your math.
If everything is correct, and you're due a refund, the IRS will issue it according to your chosen method—either direct deposit (faster) or paper check. You can track your refund status using the "Where's My Refund?" tool on IRS.gov starting about 24 hours after e-filing or four weeks after mailing a paper return.
If the IRS identifies issues with your Schedule 3 credits, you may receive a notice requesting additional documentation or explaining adjustments. Common scenarios include requests to verify child care provider information, substantiate foreign taxes paid, or clarify education expenses. Respond promptly to any IRS correspondence, providing the requested documentation within the timeframe specified (usually 30 days).
In some cases, the IRS may automatically correct simple errors (like math mistakes) and adjust your refund or balance due accordingly. You'll receive an explanation of any changes. However, if the IRS finds you claimed a credit without proper eligibility or documentation, they may disallow it entirely and recalculate your tax—potentially resulting in a balance due, plus interest and possibly penalties.
If your Schedule 3 credits reduce your tax liability significantly compared to prior years, your return may be selected for additional review, which can extend processing time. This doesn't necessarily mean there's a problem—just that the IRS is verifying the substantial credits you've claimed.
For amended returns filed on Form 1040-X with Schedule 3 corrections, allow eight to twelve weeks for processing, though complex amendments can take up to sixteen weeks. You can check the status of your amended return using the "Where's My Amended Return?" tool on IRS.gov about three weeks after filing.
FAQs
What's the difference between Schedule 3 and Schedule 5?
Schedule 3 is for nonrefundable credits (like education credits and dependent care credit), while Schedule 5 handles refundable credits and payments (like the earned income credit and additional child tax credit). The key difference: nonrefundable credits can only reduce your tax to zero, while refundable credits can result in a refund even if you owe no tax. Schedule 3 feeds into Form 1040, line 12, reducing your tax liability; Schedule 5 feeds into lines further down, potentially increasing your refund.
Can I claim the foreign tax credit if I already deducted foreign taxes on Schedule A?
No, you must choose one or the other—you can't both deduct foreign taxes as an itemized deduction and claim them as a credit. For most taxpayers, the foreign tax credit provides greater tax savings than the deduction. If you mistakenly deducted foreign taxes on Schedule A when you should have claimed them on Schedule 3, file an amended return to correct this.
Do I need 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 without needing Schedule 3. You only need Schedule 3 if you have additional nonrefundable credits beyond the child tax credit, such as education credits, dependent care credit, foreign tax credit, retirement savings credit, or energy credits.
What happens if my nonrefundable credits exceed my tax liability?
Unfortunately, most nonrefundable credits on Schedule 3 are lost if they exceed your tax liability—you don't get the excess as a refund or carry it forward. However, there are limited exceptions: certain credits like the general business credit and some energy credits may allow carrybacks or carryforwards to other tax years. Check the instructions for the specific credit to see if carryforward provisions exist.
Can I claim education credits if my parents paid the tuition?
It depends on dependency status. If your parents claim you as a dependent, they should claim the education credit on their return (if they qualify), not you. If you're not claimed as a dependent and you paid (or are responsible for) the qualified education expenses, you can claim the credit. The key is that whoever claims the dependency exemption generally claims the education credit.
How do I know if my foreign tax qualifies for the simplified method without Form 1116?
Review the five requirements carefully: (1) all foreign income was interest and dividends reported on Forms 1099, (2) total foreign taxes were $300 or less ($600 if married filing jointly), (3) you held the investment at least 16 days, (4) you're not filing Form 4563 or excluding Puerto Rico income, and (5) the foreign taxes were legally owed to recognized countries. If all five apply, you can use the simplified method and skip Form 1116.
What if I forgot to claim a credit on my 2018 Schedule 3—is it too late?
Not necessarily. You can generally amend your 2018 return to claim missed credits within three years of the original filing deadline (April 15, 2019), which means you had until April 15, 2022, to file Form 1040-X for tax year 2018. If that deadline has passed, unfortunately, the credit is lost and cannot be recovered.
Sources
Sources: All information in this guide comes exclusively from official IRS resources, including the 2018 Form 1040 Schedule 3, 2018 Form 1040 Instructions, and related guidance available at IRS.gov/Form1040.
