What the Form Is For

Schedule 2 is an attachment to your main tax form (Form 1040 or 1040-SR) that helps you report taxes that don't fit on the main form itself. Think of it as the "extra taxes" worksheet. For 2019, the IRS simplified tax filing by creating a redesigned Form 1040, and Schedule 2 became the catch-all place for reporting various additional taxes you might owe.

This schedule is divided into two main parts. Part I deals with Alternative Minimum Tax (AMT) and any repayments you need to make if you received too much advance premium tax credit for health insurance purchased through the Healthcare Marketplace. Part II covers a variety of "other taxes," including self-employment tax (for freelancers, independent contractors, and small business owners), unreported Social Security and Medicare taxes, penalties for early retirement account withdrawals, household employment taxes (for people who hire nannies or housekeepers), and various specialized taxes.

You only need to file Schedule 2 if you actually owe one or more of these additional taxes. Most typical W-2 employees who don't have side businesses or complex financial situations won't need it. However, if you're self-employed, received health insurance subsidies, withdrew money early from your IRA, or hired household help, there's a good chance Schedule 2 applies to you.

When You’d Use Schedule 2 (Including Late and Amended Returns)

You'll use Schedule 2 when preparing your 2019 tax return if any of the situations listed on the form apply to you. The regular filing deadline for 2019 returns was April 15, 2020, though automatic extensions were available until October 15, 2020.

For original returns: Attach Schedule 2 to your Form 1040 or 1040-SR if you owe any additional taxes. The schedule gets filed at the same time as your main return. If you're e-filing (which the IRS strongly encourages), the tax software will automatically include Schedule 2 when you enter information that triggers these additional taxes.

For amended returns: If you discover after filing that you should have reported additional taxes on Schedule 2, you'll need to file Form 1040-X (Amended U.S. Individual Income Tax Return). You can generally amend your return within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later. When amending, you'll include a corrected Schedule 2 showing the additional taxes you owe. Keep in mind that filing an amended return to report additional taxes you owe can help you avoid larger penalties and interest charges that accumulate over time.

For late returns: If you're filing your 2019 return late (after the deadline has passed), you'll still include Schedule 2 if applicable. The IRS recommends filing even if you're late, as the penalties for not filing are generally steeper than those for filing late without payment. You'll face late-filing penalties (typically 5% of unpaid taxes for each month or part of a month your return is late, up to 25%) plus interest on any unpaid taxes.

Key Rules or Details for 2019

Alternative Minimum Tax (AMT)

The AMT exemption amount for 2019 was $71,700 for single filers and $111,700 for married couples filing jointly. The AMT is essentially a parallel tax system designed to ensure that high-income taxpayers with many deductions still pay a minimum amount of tax. You might owe AMT if you claimed significant deductions for state and local taxes, had incentive stock options, or claimed certain tax-exempt interest from private activity bonds.

Self-Employment Tax

If you had net earnings from self-employment of $400 or more, you must file Schedule SE (Self-Employment Tax) and report the result on Schedule 2, line 4. The self-employment tax rate for 2019 was 15.3% (12.4% for Social Security on earnings up to $132,900, plus 2.9% for Medicare on all earnings). This covers both the employer and employee portions of these taxes since self-employed individuals pay both.

Household Employment Taxes

You must report household employment taxes on Schedule 2 if you paid any household employee (nanny, housekeeper, gardener) cash wages of $2,100 or more in 2019, or if you paid total cash wages of $1,000 or more in any calendar quarter of 2018 or 2019 to household employees.

Excess Premium Tax Credit Repayment

If you or your family received advance payments of the premium tax credit (subsidies for health insurance purchased through the Healthcare Marketplace), you must reconcile this using Form 8962. If the advance payments exceeded what you were actually entitled to receive, you'll report the repayment amount on Schedule 2, line 2. The maximum repayment amounts for 2019 were capped based on your income level to prevent excessive burdens on lower-income households.

Additional Tax on Early Retirement Distributions

If you took money out of an IRA or other qualified retirement plan before age 59½, you generally owe an additional 10% tax on the taxable portion of the distribution, unless an exception applies. Common exceptions include disability, certain medical expenses, first-time home purchases (up to $10,000), and qualified education expenses.

Step-by-Step (High Level)

Step 1: Determine if you need the schedule

Review your tax situation. Did you receive Form 1099-MISC or 1099-NEC showing self-employment income? Did you withdraw money from retirement accounts? Did you receive Form 1095-A showing Marketplace health coverage? Did you pay household employees? If any of these apply, you likely need Schedule 2.

Step 2: Gather required forms

Depending on which lines apply to you, you may need to complete other forms first, such as Form 6251 (for AMT), Form 8962 (for premium tax credit reconciliation), Schedule SE (for self-employment tax), Form 5329 (for additional tax on retirement accounts), or Schedule H (for household employment taxes). These supporting forms calculate the amounts you'll transfer to Schedule 2.

Step 3: Complete Part I

If you owe Alternative Minimum Tax, complete Form 6251 first and transfer the amount to Schedule 2, line 1. If you need to repay excess advance premium tax credit, complete Form 8962 and enter the repayment amount from Form 8962, line 29, on Schedule 2, line 2. Add lines 1 and 2 and enter the total on line 3, which then carries over to Form 1040, line 12b.

Step 4: Complete Part II

Work through lines 4 through 8, entering any applicable taxes. Line 4 is for self-employment tax from Schedule SE. Line 5 is for unreported Social Security and Medicare taxes (check the appropriate boxes). Line 6 is for additional tax on IRAs and retirement plans. Lines 7a and 7b cover household employment taxes and first-time homebuyer credit repayment. Line 8 is for various "other taxes" (you'll need to include the appropriate code and form). Add lines 4 through 8 and enter the total on line 10, which carries over to Form 1040, line 15.

Step 5: Attach to your return

When you're done, attach Schedule 2 behind Form 1040 or 1040-SR. If you're e-filing, the software will automatically include it in your electronic submission.

Step 6: Keep copies and documentation

Save copies of Schedule 2 and all supporting forms for at least three years. If you're claiming exceptions to penalties (such as exceptions to the early withdrawal penalty), keep documentation supporting those claims.

Common Mistakes and How to Avoid Them

Mistake #1: Not filing Schedule 2 when required

Many taxpayers overlook the need for this schedule, especially for self-employment tax or premium tax credit repayments. If you receive Form 1095-A from the Marketplace showing advance premium tax credit payments, you must reconcile these and file Schedule 2 even if you don't owe any other additional taxes. Missing this requirement can result in penalties and delayed refunds.

Mistake #2: Using the worksheet instead of Form 6251 for AMT

There's a simplified worksheet to help you determine if you might owe AMT, but it's only appropriate for certain taxpayers. If you claimed accelerated depreciation, received stock options, claimed certain credits, or had other complex tax items, you must use the full Form 6251 instead. Using the wrong calculation method can result in underpayment penalties.

Mistake #3: Forgetting to attach required supporting forms

Schedule 2 is a summary schedule. The IRS expects you to attach the detailed forms that support your entries (Form 6251, Form 8962, Schedule SE, Form 5329, Schedule H, etc.). Failing to attach these forms can trigger IRS inquiries and delay processing of your return.

Mistake #4: Incorrect or missing codes on line 8

Line 8 requires you to enter specific codes for various types of "other taxes" (like "8959" for Additional Medicare Tax or "8960" for Net Investment Income Tax). Forgetting these codes or using incorrect ones creates confusion and processing delays. Always refer to the instructions for the proper code to use.

Mistake #5: Not checking the boxes on line 5

If you're reporting unreported Social Security and Medicare taxes on line 5, you must check the appropriate box to indicate whether the tax is from Form 4137 (unreported tips) or Form 8919 (uncollected employee taxes). Omitting this information can cause the IRS to question your return.

Mistake #6: Calculating self-employment tax incorrectly

Self-employed individuals must use Schedule SE to calculate their self-employment tax. A common error is forgetting that you can deduct one-half of your self-employment tax as an adjustment to income on Schedule 1, line 14. Don't report the full self-employment tax amount from Schedule SE as your only tax burden without also claiming this deduction.

What Happens After You File

Once you file your Form 1040 with Schedule 2 attached, the IRS processes your return and either issues your refund or sends you a bill for any additional taxes owed.

Normal processing: For e-filed returns, the IRS typically processes them within 21 days. Paper returns take longer, often six to eight weeks or more. If your return is accurate and complete, you should receive any refund within this timeframe or receive a confirmation that your payment was received if you owed additional tax.

IRS matching and verification: The IRS uses computers to match the amounts you report on Schedule 2 with information from third-party sources (like Form 1095-A for health insurance or Forms 1099 for income). If there are discrepancies, you'll receive a notice asking for clarification or proposing changes to your return. Common notices include CP2000 (underreported income) or Letter 12C (requesting additional information).

Payment of additional taxes: If you owe additional taxes reported on Schedule 2 and didn't pay the full amount when you filed, you'll need to pay by the filing deadline to avoid interest and penalties. The IRS offers payment plans for taxpayers who can't pay in full. Interest accrues on unpaid balances from the filing deadline forward, currently at the federal short-term rate plus 3%.

Amended returns and corrections: If you discover an error on your Schedule 2 after filing, file Form 1040-X to amend your return. The IRS doesn't automatically adjust your return if you made a mathematical error; they'll usually correct simple math mistakes and notify you. However, if you missed an entire tax liability or made a substantive error, you must file an amended return.

Audits and examinations: Returns with Schedule 2, particularly those claiming complex deductions or reporting unusual situations, may have a slightly higher audit rate. If selected for audit, the IRS will send you a notice requesting documentation to support the amounts reported on Schedule 2. Keep detailed records, receipts, and supporting documents for at least three years (or longer for certain situations).

FAQs

Q1: Do I need Schedule 2 if I'm self-employed and that's my only additional tax?

Yes. If you have net earnings from self-employment of $400 or more, you must calculate self-employment tax using Schedule SE and report it on Schedule 2, line 4. Even if self-employment tax is your only additional tax, you still need to file Schedule 2 attached to Form 1040. This is one of the most common reasons taxpayers file this schedule.

Q2: What happens if I received advance premium tax credits but didn't file Form 8962 and Schedule 2?

If you or a family member was enrolled in Marketplace health coverage and received advance premium tax credit payments (shown on Form 1095-A), you're required by law to file Form 8962 to reconcile these payments and include any repayment on Schedule 2, line 2. Failing to do so can result in your return being rejected if you e-file, or significantly delayed processing if you file on paper. The IRS may also hold your refund until you provide the required form. For future years, the IRS may deny your eligibility for advance credit payments if you fail to reconcile in the current year.

Q3: I took $5,000 out of my IRA at age 45. Do I have to pay the 10% early withdrawal penalty?

Generally, yes. If you took a distribution from your IRA before age 59½, you must pay a 10% additional tax on the taxable portion of the distribution unless an exception applies. Common exceptions include using the funds for qualified higher education expenses, first-time home purchase (up to $10,000), unreimbursed medical expenses exceeding 7.5% of your adjusted gross income, disability, or substantially equal periodic payments. Review Form 5329 and its instructions to determine if an exception applies to your situation. If not, you'll calculate the 10% additional tax and report it on Schedule 2, line 6.

Q4: Can I file Form 1040 now and add Schedule 2 later if I'm waiting for a form?

No. If you owe any of the additional taxes reported on Schedule 2, you must file a complete return including Schedule 2. Filing an incomplete return can result in processing delays, penalties, and interest on underpaid taxes. If you're waiting for a necessary form (like Form 1095-A or a corrected Form 1099), it's better to file for an extension using Form 4868, which gives you until October 15 to file your return. Remember, an extension to file is not an extension to pay—you should still estimate and pay any taxes you owe by the April deadline to minimize interest and penalties.

Q5: I'm a freelance writer with a side business. How do I know if I owe self-employment tax?

If your net earnings from self-employment (your business income minus business expenses) are $400 or more for the year, you must pay self-employment tax. Use Schedule C (or Schedule C-EZ if you qualify) to calculate your net profit or loss from your freelance writing business. If you have a net profit of $400 or more, complete Schedule SE to calculate your self-employment tax, and report the amount on Schedule 2, line 4. Don't forget that you can deduct half of your self-employment tax as an adjustment to income on Schedule 1, line 14.

Q6: What's the Alternative Minimum Tax, and how do I know if I owe it?

The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that taxpayers with high incomes and significant deductions still pay a minimum amount of federal income tax. You might owe AMT if you have high itemized deductions (especially state and local taxes), exercised incentive stock options, claimed tax-exempt interest from certain private activity bonds, or have other preference items. The IRS provides a worksheet to help determine if you should complete Form 6251. If you're unsure, most tax preparation software will automatically calculate whether you owe AMT. For 2019, single filers with incomes below approximately $200,000 and married couples below approximately $500,000 typically don't owe AMT unless they have unusual tax situations.

Q7: I hired a nanny and paid her $25,000 in 2019. Do I need Schedule 2?

Yes. If you paid a household employee (nanny, housekeeper, gardener, etc.) cash wages of $2,100 or more in 2019, you must file Schedule H to calculate household employment taxes, which include Social Security, Medicare, and federal unemployment taxes. You then report these taxes on Schedule 2, line 7a. You're also required to withhold and report these taxes even if your employee is a family member (though there are exceptions for spouses and your own children under age 21). Failing to report household employment taxes can result in back taxes, penalties, and interest.

For More Information

Complete instructions and forms are available at IRS.gov/Form1040. You can also download the specific 2019 Schedule 2 instructions and the 2019 Schedule 2 form directly from the IRS website.