What this line means
Additional taxes from Schedule 2, Part II that are added to your tax after credits. The most common are self-employment tax, the Additional Medicare Tax (0.9% on high earnings), the Net Investment Income Tax (3.8% on investment income above thresholds), and the tax on early distributions from retirement accounts. These taxes exist outside the regular income tax system.
Does this apply to you?
- You are self-employed with net earnings above $400 (self-employment tax)
- You have wages plus self-employment income exceeding $200,000 single / $250,000 MFJ (Additional Medicare Tax)
- You have investment income and your modified AGI exceeds $200,000 single / $250,000 MFJ (Net Investment Income Tax)
- You took an early distribution from a retirement account before age 59½ (10% penalty)
- You owe household employment taxes for a nanny or housekeeper
Easy to overlook
Self-employment tax is in addition to income tax Self-employment tax (15.3% on 92.35% of net self-employment earnings up to the $176,100 wage base, then 2.9% above that) is separate from the income tax calculated on lines 16-22. A freelancer with $80,000 in net business income owes approximately $11,300 in self-employment tax on top of their regular income tax. This catches first-time freelancers off guard every year. 1 General filing pattern — self-employment tax not anticipated
The Net Investment Income Tax adds 3.8% on top of capital gains rates Investment income (capital gains, dividends, rental income, interest) above $200,000 AGI (single) or $250,000 (MFJ) gets hit with an additional 3.8% surtax. This means long-term capital gains that you thought were taxed at 15% or 20% are actually taxed at 18.8% or 23.8% once the NIIT kicks in. 2 IRS Schedule 2, Part II instructions — Other Taxes
Watch out for this
Not making estimated tax payments to cover self-employment tax. W-2 employees have FICA taxes withheld automatically, but self-employed filers must pay self-employment tax through quarterly estimated payments. Failing to make these payments results in an underpayment penalty on line 38, even if you pay the full amount at filing time.
Footnotes
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IRS Form 1040 Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩
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IRS Schedule 2 (Form 1040) Instructions, Part II (Other Taxes). https://www.irs.gov/instructions/i1040s2 ↩