Schedule 3-Additional Credits and Payments
Schedule 3 is an IRS tax form that allows you to claim tax credits. Tax credits allow you to reduce your tax liability on a dollar for dollar basis. In this article, we will go over the basics of how Schedule 3 works and the credits you can claim.
Schedule 3 was created with the tax law changes that took effect in the 2018 tax year. This schedule allows you to claim tax credits to reduce your tax liability and gives you the potential for a larger refund. Schedule 3 is made up of two parts: (1) Nonrefundable credits and (2) Other payments and refundable credits.
Part I-Nonrefundable Credits
Nonrefundable tax credits will reduce your tax liability by a dollar for dollar basis. But they cannot reduce your liability below $0.00 as these credits cannot be refunded to you in cash.
Line 1- Foreign Tax Credit
This applies if you paid taxes to a foreign county and/or a US possession and you are still subject to US taxation on that same income. With this credit, you may be able to reduce your US tax liability. To properly accomplish this, you will also need to file Form 1116.
Line 2-Credit for Child and Dependent Care Expenses
Line 2 allows you to claim a tax credit to help cover the cost of childcare or the care of a dependent. To qualify you must be working, actively looking for employment, or a full-time student. You will also need to file Form 2441.
Line 3-Education Credits
If you are a college student, this line allows you to take tax credits to reclaim some of your education costs. This could include the Lifetime Learning Credit or the American Opportunity Tax Credit. Additionally, you will need to file Form 8863.
Line 4-Retirement Savings Contributions Credit
This allows you to claim a credit for up to $1,000 for contributions you made to any eligible retirement plans. The actual credit amount you can claim is based on your adjusted gross income, your filing status, and the total amount you put into retirement savings for the year. You will also need to attach Form 8880.
Line 5-Residential Energy Credit
If you made certain solar, wind, or geothermal energy improvements to your home you may qualify to claim this credit. Additionally, you will need to attach a Form 5695
Line 6-Other Credits
This line allows you to claim other nonrefundable credits such as the general business credit.
Part II-Other Payments and Refundable Credits
Part II of Schedule 3 gives you the opportunity to claim refundable tax credits. If a refundable tax credit takes your liability below $0.00 it can result in the rest of the credit being reimbursed to you through a refund.
Line 8-2019 Estimated Tax Payments and Amount Applied from 2018 Return
This may be applicable is you made estimated quarterly tax payments during the year or you applied your 2018 refund to meet your 2019 tax liability. By claiming this credit, you may be eligible for a refund.
Line 9- Net Premium Tax Credit
The premium tax credit is a refundable credit put in place to help reduce the cost of health insurance. You can take the credit as a reduction to your insurance premium or you can claim it in entirety on your return. Along with Schedule 3, you will need to file a Form 8967 to claim this credit
Line 10-Amount Paid with Request for Extension to File
When you put in an extension to file your tax return, it allows you to file your return later. However, your tax liability is still due on the original deadline. If you want to avoid paying interest and penalties, you can make a payment when you file for your extension. You need to report such a payment on line 10 and it may generate a refund for you.
Line 11- Excess Social Security or Tier 1 RRTA Tax Withheld
If you had too much social security or tier 1 railroad tax withheld, you may be able to reclaim that overpayment. If you meet certain qualifications, you can report your overpayment here and it may result in a refund.
Line 12- Credit for Federal Tax on Fuels
If you bought fuel for farming equipment or commercial aviation, you may be able to use this credit to earn back federal tax paid on that fuel. You will also need to attach a Form 4136.
Line 13-Other Credits
This line allows you to claim other miscellaneous refundable tax credits.
Completing Schedule 3
Schedule 3 may be small, but it is important that the schedule and all corresponding forms are completed correctly. The best way to do this is by hiring a qualified tax preparer to assist you. They will understand all the nuances to help you complete this form correctly.
Questions? Want to schedule an appointment? Contact us by clicking here.