What the Form Is For

Schedule 3 (Form 1040) is an IRS form used to report certain nonrefundable credits that reduce the amount of tax you owe. This form was brand new for the 2018 tax year as part of the IRS's redesign of Form 1040. Previously, many of these credits were reported directly on the main Form 1040, but starting in 2018, they moved to this separate schedule to simplify the primary form.

Think of Schedule 3 as the "extra credits" form. While basic tax credits like the Child Tax Credit can be entered directly on Form 1040, Schedule 3 handles more specialized credits that don't apply to everyone. These include the Foreign Tax Credit (for taxes paid to other countries), education credits for college expenses, credits for energy-efficient home improvements, and credits for child and dependent care expenses, among others.

The form consists of a single page with lines 48 through 55, each corresponding to a specific type of credit. Once you've filled out the appropriate lines, you total them up on line 55 and transfer that amount to your main Form 1040, where it reduces your overall tax liability. The credits on Schedule 3 are "nonrefundable," meaning they can reduce your tax bill to zero but won't generate a refund beyond what you've already paid.

When You’d Use It (Late/Amended Returns)

You must attach Schedule 3 to your Form 1040 whenever you're claiming any of the credits listed on lines 48 through 54. If you don't qualify for any of these credits, you simply don't need to file Schedule 3 at all.

Filing a Late Return: If you missed the April 15, 2019 deadline (April 17, 2019 for Maine and Massachusetts residents due to local holidays), you can still file Schedule 3 with your late Form 1040. However, interest and penalties may apply to any unpaid tax from the original due date. If you're owed a refund, there's no penalty for filing late—though you'll want to file within three years of the original deadline to claim that refund.

Filing an Amended Return: If you filed your 2018 return but forgot to claim credits on Schedule 3, or if you made an error in calculating those credits, you can file an amended return using Form 1040-X. According to IRS guidelines, you generally have three years from when you filed your original return or two years from when you paid the tax (whichever is later) to claim a refund through an amendment. For 2018 returns filed by the April 2019 deadline, this means you would need to file an amended return by April 2022 to claim additional credits.

Note that simple math errors don't require amended returns—the IRS will correct those automatically. However, if you forgot to attach a required form (like Form 1116 for the Foreign Tax Credit or Form 2441 for the Child Care Credit), or if you miscalculated your credit eligibility, you'll need to amend.

Key Rules for 2018

The 2018 tax year brought significant changes due to the Tax Cuts and Jobs Act, and these affected several credits on Schedule 3:

Income Thresholds: Many credits phase out at specific income levels. For example, education credits are not available if your adjusted gross income (AGI) reaches $90,000 ($180,000 if married filing jointly). The Retirement Savings Contributions Credit is available only if your AGI is under $31,500 ($47,250 for head of household, $63,000 for joint filers).

Required Forms: Most credits require you to complete and attach an additional form. The Foreign Tax Credit requires Form 1116 (unless you meet specific exceptions), the Child and Dependent Care Credit requires Form 2441, education credits require Form 8863, and so on. Don't forget these attachments, or your credits may be disallowed.

Social Security Number Requirements: For credits involving dependents (like the Child Care Credit), qualifying individuals must have valid Social Security numbers issued before the due date of your return.

Nonrefundable Nature: All credits on Schedule 3 are nonrefundable, meaning they can only reduce your tax to zero—they won't create a refund by themselves. This contrasts with refundable credits like the Earned Income Credit or Additional Child Tax Credit, which can result in refunds even if you owe no tax.

Special 2018 Rule for Energy Credits: For the Residential Energy Credit (line 53), if you made qualifying energy-efficient improvements to your home in 2018 but didn't claim the credit on your original return, the IRS requires you to file an amended return (Form 1040-X) to claim it retroactively.

Foreign Tax Credit Exception: You can claim up to $300 in foreign taxes ($600 if married filing jointly) directly on Schedule 3 without filing Form 1116, but only if all five specific conditions are met: your foreign income came only from interest and dividends reported on Forms 1099; you held the investments for at least 16 days; your foreign taxes don't exceed the thresholds; you're not excluding Puerto Rico income; and the taxes were paid to recognized countries that don't support terrorism.

Step-by-Step (High Level)

Step 1: Determine Your Eligibility

Review lines 48 through 54 and identify which credits you qualify for. Read the specific requirements for each credit in the IRS instructions or on the relevant forms. Don't assume you qualify—verify income limits, dependent requirements, and other conditions.

Step 2: Gather Supporting Documents

Collect all necessary documentation: receipts for educational expenses, statements showing foreign taxes paid (Forms 1099-INT or 1099-DIV), daycare provider information with their tax ID number, home energy improvement receipts and manufacturer certifications, retirement contribution statements, and any other supporting records.

Step 3: Complete Required Forms

Fill out the specific form associated with each credit you're claiming. For example, complete Form 8863 for education credits, Form 2441 for child care expenses, Form 8880 for retirement savings contributions, or Form 5695 for residential energy credits. These forms contain worksheets that calculate your exact credit amount based on your circumstances.

Step 4: Transfer Amounts to Schedule 3

Once you've completed the required forms, transfer the calculated credit amounts to the appropriate lines on Schedule 3. Enter the Foreign Tax Credit on line 48, Child and Dependent Care Credit on line 49, education credits on line 50, retirement savings credit on line 51, residential energy credits on line 53, and any other credits on line 54 (checking the appropriate boxes).

Step 5: Total Your Credits

Add up all the amounts you've entered on lines 48 through 54, and write the total on line 55. This is your total nonrefundable credits from Schedule 3.

Step 6: Attach Everything to Form 1040

Include Schedule 3 with your Form 1040, along with all the required supporting forms (1116, 2441, 8863, 8880, 5695, etc.). Transfer the line 55 total to Form 1040, line 12, and check the box indicating Schedule 3 is attached. The amount will reduce your overall tax liability.

Step 7: File Your Return

Submit your complete return—Form 1040, Schedule 3, and all supporting forms—either electronically (recommended for faster processing) or by mail. E-filed returns are typically processed within 21 days, while paper returns can take 6 to 8 weeks.

Common Mistakes and How to Avoid Them

Mistake #1: Forgetting to Attach Required Forms

The most frequent error is claiming a credit on Schedule 3 without attaching the mandatory supporting form. For instance, claiming $1,000 in education credits on line 50 without including Form 8863 will result in the IRS rejecting that credit. Solution: Double-check the instructions for each line and ensure you've completed and attached every required form before submitting your return.

Mistake #2: Exceeding Income Limits

Many taxpayers claim credits without realizing their income exceeds the eligibility threshold. If you earn over the limit, you either get a reduced credit or no credit at all. Solution: Before completing any credit form, verify your AGI (from Form 1040, line 7) against the income limits specified in the instructions. Use the phaseout worksheets provided to calculate reduced credits when applicable.

Mistake #3: Using Wrong or Missing Tax ID Numbers

For credits involving dependents or service providers (like child care), you must provide valid Social Security numbers or Employer Identification Numbers. Missing or incorrect numbers cause processing delays and credit denials. Solution: Verify all SSNs against Social Security cards, and request EINs from daycare providers or other service providers well before filing. Don't use ITINs where SSNs are required.

Mistake #4: Claiming Credits for Non-Qualifying Expenses

Not all educational expenses qualify for education credits, and not all home improvements qualify for energy credits. For example, room and board doesn't count toward education credits, and replacing regular windows (rather than energy-efficient ones with specific certifications) won't qualify. Solution: Read the detailed definitions of "qualifying expenses" in the form instructions, and save manufacturer certifications or receipts showing that products meet IRS energy-efficiency standards.

Mistake #5: Double-Dipping on Credits

You can't claim multiple credits for the same expense. For instance, you can't claim both an education credit and the tuition and fees deduction for the same student in the same year. Similarly, if your employer reimbursed your child care expenses, you can't claim them for the credit. Solution: Choose the tax benefit that saves you the most money, and don't claim reimbursed or already-deducted expenses for credits.

Mistake #6: Math Errors in Calculations

While the IRS will correct simple arithmetic errors, significant calculation mistakes—especially in credit phaseout worksheets—can delay processing. Solution: Use tax software when possible, as it performs calculations automatically. If filing by paper, double-check all math using a calculator and have someone else review your work.

Mistake #7: Not Meeting the Foreign Tax Credit Simplified Method Requirements

Many taxpayers claim the Foreign Tax Credit without Form 1116, not realizing they don't meet all five exception criteria. Solution: If you paid more than $300/$600 in foreign taxes, had foreign income beyond simple interest/dividends, or didn't hold investments for 16+ days, you must file Form 1116. Don't skip it just to save time.

What Happens After You File

Immediate Processing: Once the IRS receives your return (whether e-filed or mailed), it enters their processing system. E-filed returns with Schedule 3 are typically acknowledged within 24-48 hours. You'll receive confirmation that your return was accepted.

Verification and Review: IRS computers automatically check your Schedule 3 credits against your attached forms and compare them to data they've received from third parties (like colleges sending Form 1098-T or banks sending Forms 1099). They'll verify that your math is correct and that all required documentation is present.

Corrections: If the IRS finds a simple math error, they'll correct it automatically and adjust your refund or tax due accordingly. They'll send you a notice explaining the change. However, if substantive information is missing (like a required Form 1116), they may send a letter requesting the missing documentation or disallowing the credit entirely.

Refund or Balance Due: If your Schedule 3 credits resulted in a refund, expect it within 21 days for e-filed returns with direct deposit. Paper returns or mailed checks take longer—typically 6 to 8 weeks. You can track your refund status using the "Where's My Refund?" tool on IRS.gov. If you still owe tax after credits, pay by the filing deadline to avoid interest and penalties.

Potential Inquiries: In some cases, especially with larger or less common credits (like significant foreign tax credits or business-related credits on line 54), the IRS may send a letter asking for additional documentation to support your claim. Respond promptly with requested documents—copies of receipts, bank statements, Forms 1042-S for foreign income, or whatever they've asked for.

Carry-Forwards: Some credits (like the general business credit or certain energy credits) can be carried forward to future years if they exceed your tax liability. The IRS will note these on your account, and you'll need to track them for next year's return using Form 3800 or other applicable forms.

Long-Term Record Keeping: Keep copies of your 2018 Form 1040, Schedule 3, and all supporting forms and documentation for at least three years from the filing date. If you claimed certain credits (like the adoption credit), the IRS recommends keeping records longer—up to seven years.

FAQs

Q1: Do I need to file Schedule 3 if I don't have any of these credits?

No. Schedule 3 is only required if you're claiming one or more of the credits listed on lines 48-54. If you don't qualify for any of these credits, simply don't include Schedule 3 with your Form 1040.

Q2: Can I e-file Schedule 3, or must it be mailed?

You can absolutely e-file Schedule 3 along with your Form 1040 and supporting forms. In fact, e-filing is strongly recommended because it's faster, more accurate, and provides confirmation of receipt. The IRS processes e-filed returns with Schedule 3 in about three weeks versus 6-8 weeks for paper returns.

Q3: What's the difference between nonrefundable credits on Schedule 3 and refundable credits?

Nonrefundable credits (Schedule 3) can only reduce your tax liability to zero—they won't create a refund beyond taxes you've already paid through withholding or estimated payments. Refundable credits like the Earned Income Credit or Additional Child Tax Credit, on the other hand, can result in a refund even if you owe no tax. If Schedule 3 credits exceed your tax liability, the excess is simply lost (unless it's a credit that can be carried forward).

Q4: I forgot to claim a credit on my 2018 Schedule 3. Can I still get it?

Yes, but you'll need to file an amended return using Form 1040-X. You generally have three years from when you filed your original return to claim a refund through an amendment. Since 2018 returns were due in April 2019, you would need to amend by April 2022 to claim additional credits. Include a corrected Schedule 3 and any required supporting forms with your Form 1040-X.

Q5: Can I claim education credits for myself, or are they only for my children?

You can absolutely claim education credits for yourself, your spouse, or your dependents—anyone for whom you paid qualifying educational expenses at an eligible institution. The American Opportunity Credit is available for the first four years of post-secondary education, while the Lifetime Learning Credit can be claimed for any year of post-secondary education or courses to improve job skills.

Q6: If I paid foreign taxes to multiple countries, how do I report them?

If you meet all five exceptions for the simplified method and your total foreign taxes are under $300 ($600 jointly), simply enter the total on Schedule 3, line 48, without filing Form 1116. If you don't meet the exceptions or your foreign taxes exceed those amounts, you must complete Form 1116. If you have income from multiple countries, you may need to complete separate Form 1116s for each country or use the appropriate sections of Form 1116 to allocate taxes properly.

Q7: I claimed an energy credit for solar panels installed in 2018. When will I get my money?

The residential energy credit (line 53) is nonrefundable, so it will only reduce the tax you owe—it won't come as a separate payment. When you file your return, this credit reduces your overall tax liability, which means you'll either owe less or receive a larger refund (depending on your withholding). If the credit exceeds your tax liability for 2018, certain energy credits allow you to carry the unused portion forward to future tax years using Form 5695.

Sources

All information in this guide is based on official IRS publications for tax year 2018:

2018 Schedule 3 (Form 1040)
2018 Instructions for Form 1040
IRS Topic 308: Amended Returns
IRS: File an Amended Return