Form 1040 Schedule 2 (2023): Reporting Additional Taxes

What Form 1040 Schedule 2 Is For

Form 1040 Schedule 2 reports taxes that do not appear directly on Form 1040. It covers items such as the Alternative Minimum Tax, excess premium tax credit repayment, and several “other taxes” listed in Part II. These include self-employment tax from Schedule SE, household employment taxes from Schedule H, and additional taxes related to retirement accounts. 

You file Schedule 2 only when one or more of these tax situations apply to your return. Use the IRS Form Help Center for guidance on forms commonly required when calculating additional taxes beyond the main Form 1040.

When You’d Use Form 1040 Schedule 2

You use Schedule 2 when you owe additional taxes that do not appear on the main Form 1040. Common situations include:

• Self-employment tax: This applies to self-employed individuals with at least $400 in net earnings who must file Schedule SE. This also covers the full share of Social Security and Medicare taxes not withheld by an employer.
  
  
• Health Insurance Marketplace items: Taxpayers who received advance payments of the premium tax credit through the Health Insurance Marketplace must reconcile them on Form 8962. This may apply to anyone who enrolled through the Health Insurance Marketplace.
  
  
• Alternative Minimum Tax: This applies when your income or deductions trigger AMT after completing Form 6251. Schedule 2 reports the additional tax owed under these rules.
  
  
• Retirement account issues: Early withdrawals, missed required minimum distributions, or other corrections reported on Form 5329 may trigger extra taxes.
  
  
• Household employment taxes: These are required when you pay a nanny, housekeeper, or other worker enough to file Schedule H. These taxes cover unpaid security and Medicare taxes for household employees.

If the IRS flags inconsistencies related to premium tax credits, AMT, or other Schedule 2 items, consult our guide on responding to an IRS CP2000 notice.

Key Rules or Details for 2023

Several rules apply to Schedule 2 for the 2023 tax year. Key points include:

• Supporting forms are required for many lines:
  
  • Form 6251 for the Alternative Minimum Tax
    
    
  • Form 8962 for Marketplace premium tax credit reconciliation
    
    
  • Schedule SE for self-employment tax
    
    
  • Schedule H for household employment taxes
    
    
  • Form 5329 for retirement account penalties
    
    
• 2023 thresholds that determine when additional taxes apply:
  
  
  • $400 or more in net self-employment income requires Schedule SE
    
    
  • $2,600 or more in cash wages to a household employee requires Schedule H
    
    
  • Most early retirement withdrawals face a 10% additional tax reported on Form 5329
    
    
• How totals flow to your return:
  
  
  • Part I totals move to Form 1040, line 17
    
    
  • Part II totals move to Form 1040, line 23
    
    

These rules determine when Schedule 2 applies and what must be included in it.

Step-by-Step (High Level)

You can think of Schedule 2 as a checklist that connects to other IRS forms and helps you report additional taxes owed on your primary tax return form. These steps outline the process at a high level.

Step 1: Review Schedule 2

Review both parts and identify the lines that correspond to your tax obligations. This helps you determine whether items such as unreported tip income, uncollected Social Security benefits, or investment income may require additional forms.

Step 2: Complete Supporting Forms

Fill out any forms that feed into Schedule 2. These may include:

• Schedule SE for self-employment and additional income
  
  
• Form 8962 for premium tax credit reconciliation
  
  
• Form 6251, if you owe AMT
  
  
• Schedule H for household employment taxes
  
  
• Form 5329 for penalties on qualified retirement plans, excess contributions, or early withdrawals
  
  
• Form 8960, if net investment income applies
  
  
• Form 4137 if you have unreported tips

If you received pay from a non-qualified deferred compensation plan, confirm whether any amounts belong on these forms.

Step 3: Transfer Amounts to Schedule 2

Move the figures from your supporting forms onto the correct lines in Part I and Part II. This ensures that your total tax liability accurately reflects items that fall outside the standard income tax.

Step 4: Add Totals and Move Them to Form 1040

Add the totals from both parts and carry them to Form 1040, lines 17 and 23. Attach Schedule 2 to your income tax return and check the tax filing deadlines. If mailing, use the address of the appropriate IRS office listed for your location.

Common Mistakes and How to Avoid Them

People often miss required parts of Schedule 2 because several lines depend on other forms. Key issues include:

• Skipping Schedule 2 when self-employed: This occurs when an individual forgets that $400 in net self-employment income triggers the need to complete Schedule SE. Review your 1099s and business records early to confirm whether Schedule SE applies.
  
  
• Leaving out Form 8962 for Marketplace coverage: Missing this form delays processing when advance premium tax credits were paid. Use Form 1095-A to complete Form 8962 before entering anything on Schedule 2.
  
  
• Incorrect AMT steps: Filing Form 6251 when it is not required, or skipping it when it is, creates mismatches. Use the AMT worksheet in the Form 1040 instructions to verify your Alternative Minimum Tax (AMT) status.
  
  
• Missing household employment taxes:  Paying a nanny or housekeeper enough to require Schedule H must be reported through Schedule 2. Track cash wages and confirm whether the $2,600 threshold applies.
  
  
• Overlooking retirement-related penalties: Early withdrawals or missed RMDs often require the completion of Form 5329. Review all retirement account forms (such as 1099-R) before finalizing your return.

Explore how to request an IRS installment agreement when AMT, self-employment tax, or retirement penalties increase the amount owed.

What Happens After You File

Once you file your return with Schedule 2, the IRS reviews it along with any supporting forms. E-filed returns are usually processed faster than paper returns. If Schedule 2 increases your total tax, the balance is due by the filing deadline to avoid penalties and interest. If the IRS identifies a discrepancy in the records it receives from employers or financial institutions, it may contact you.

FAQs

Do I need the Schedule 2 form if I owe household employment taxes?

You must use Schedule 2 when you pay enough cash wages to a household employee to require Schedule H. Schedule 2 adds these taxes to your income tax return, which the IRS uses to calculate your total tax.

How does the Alternative Minimum Tax (AMT) apply to me?

The AMT applies when certain income or deduction levels trigger a separate tax calculation. To verify your status, complete the worksheet in the Form 1040 instructions or use Form 6251. If you owe this tax, the amount is reported on Schedule 2.

Do I report the Additional Medicare Tax on Schedule 2?

Yes, if your earnings exceed the income threshold for the Additional Medicare Tax, the calculation appears on Form 8959, and the final amount is transferred to Schedule 2. This tax is separate from regular Social Security and Medicare withholding.

Where do I report penalties tied to retirement plans?

Penalties from early withdrawals or missed required minimum distributions from retirement plans are figured on Form 5329. The resulting amount is then carried to Schedule 2 as part of your additional taxes.

Does the premium tax credit repayment count as excess advance premium tax?

Yes, if you received more advance premium tax credits than you qualified for, the excess is treated as an overpayment of advance premium tax credits. You calculate this on Form 8962, and the repayment is entered on Schedule 2.