What Was the 2020 Form 1040 Schedule 3?

The 2020 Form 1040 Schedule 3 was an attachment to Form 1040, 1040-SR, or 1040-NR. Its purpose was to provide a designated place for taxpayers to report certain tax credits and payments that did not have a direct entry line on the main Form 1040. For individuals amending a 2020 tax return or reviewing a past filing, understanding this schedule is necessary for comprehending how the total tax liability was calculated. The form consolidated various calculations from other, more detailed forms onto a single schedule.

Part I Nonrefundable Credits Explained

Part I of Schedule 3 dealt with nonrefundable credits. A nonrefundable credit can reduce a taxpayer’s liability to zero, but no portion of the credit is paid out as a refund if it exceeds the total tax owed. The Foreign Tax Credit, calculated using Form 1116, was available to taxpayers who paid income taxes to a foreign country on income that was also subject to U.S. tax, which helps prevent double taxation.

The Credit for Child and Dependent Care Expenses, calculated on Form 2441, was for expenses paid for the care of a qualifying individual to allow the taxpayer to work or look for work. For 2020, the total expenses used to calculate the credit could not exceed $3,000 for one qualifying individual or $6,000 for two or more. The credit was a percentage of these expenses, with the percentage decreasing as adjusted gross income (AGI) increased.

Education credits calculated on Form 8863 included the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC was for an eligible student’s first four years of higher education, with a maximum annual credit of $2,500 per student. The LLC offered a maximum credit of $2,000 per return for qualified tuition and fees.

The Retirement Savings Contributions Credit, from Form 8880, was designed to help mid- and low-income taxpayers save for retirement. The credit amount was based on the contribution amount and the taxpayer’s AGI.

Part II Other Payments and Refundable Credits Explained

Part II of the 2020 Schedule 3 included other tax payments and specific refundable credits. Unlike nonrefundable credits, a refundable credit is treated as a payment. If the amount of a refundable credit is more than the tax owed, the difference is issued to the taxpayer as a refund.

A key item in this section was the Net Premium Tax Credit, calculated on Form 8962. This credit helped individuals and families cover premiums for health insurance purchased through the Health Insurance Marketplace. Taxpayers could receive advance payments of the credit or claim the full amount on their tax return. Line 9 was for the amount paid with Form 4868, a request for an automatic extension of time to file, which was a payment made by the tax deadline to cover anticipated taxes.

Another line item addressed excess Social Security or Tier 1 Railroad Retirement Tax Act (RRTA) tax withheld. This could occur if a taxpayer had more than one employer during 2020 and their combined wages exceeded the annual limit of $137,700. Each employer would have withheld Social Security tax up to this limit, potentially resulting in an overpayment when the wages were combined. This excess amount was treated as a payment on Schedule 3.

Completing and Transferring Totals from Schedule 3

Completing Schedule 3 was a matter of transferring calculated totals from other forms. After preparing the supporting documents, the taxpayer would take the final credit amount from the source form and enter it on the corresponding line of Schedule 3. For instance, the total from Form 2441 for child care expenses was entered on line 2.

Once all applicable lines in Part I were filled, they were added together, and the sum was entered on line 7. This total represented the taxpayer’s nonrefundable credits. This figure was then transferred to line 20 of the 2020 Form 1040 or 1040-SR, which directly reduced the calculated tax.

A similar procedure applied to Part II. The amounts from lines 8 through 12f were summed, and the total was entered on line 13. This total represented other payments and refundable credits. The amount was then carried over to line 31 of the 2020 Form 1040 or 1040-SR and added to other payments to determine the final overpayment or amount due.