Schedule 2
IRS, Additional Taxes (Form 1040)
The schedule that totals taxes beyond regular income tax, including self-employment tax, NIIT and the alternative minimum tax.
What is Schedule 2?
Schedule 2 gathers the taxes that sit outside the ordinary income tax calculation and carries their total to Form 1040. For Americans in the UK, two lines deserve particular attention: self-employment tax and the net investment income tax. Neither is removed by the foreign earned income exclusion, and credits for UK tax do not reach them in the usual way.
The extra US taxes that follow you abroad
The schedule has two parts. The first holds the alternative minimum tax from Form 6251 and repayment of excess premium tax credit.
The second holds other taxes: self-employment tax from Schedule SE, additional Medicare tax from Form 8959, the net investment income tax from Form 8960, additional tax on retirement accounts, and a handful of less common items. Each has its own supporting form, and Schedule 2 simply collects the results into one figure.
Self-employment tax is charged at 15.3% before any treaty relief. A US citizen who is self-employed and lives in the UK is generally covered by UK National Insurance under the US-UK totalization agreement, not by US social security. To claim that, the filer obtains a certificate of coverage from HMRC and attaches a statement to the return. Without it, the IRS expects the tax, and the foreign earned income exclusion does not reduce it.
The net investment income tax adds 3.8% on investment income above a threshold, and it applies to US citizens whatever their residence. For a UK resident with dividends, interest or gains already taxed by HMRC, the issue is relief. The tax is generally not creditable under domestic law, and treaty-based claims are contested. The alternative minimum tax has its own foreign tax credit calculation, which usually follows the regular credit but can diverge.
At a glance
- Form 1040 or Form 1040-NR
- Attached to
- 15.3% before the totalization agreement applies
- Self-employment tax rate
- 3.8%, computed on Form 8960
- Net investment income tax
- A certificate of coverage from HMRC
- Totalization relief needs
Figures are for the tax year stated in the official instructions linked below.
How we handle it
- Individual Tax Returns
US federal returns for Americans living in the UK and British nationals with US income, prepared with the UK figures in view.
- Treaty Relief
Claims under the US/UK income tax treaty, with Form 8833 disclosure, residence tie-breaker analysis and reduced withholding on US income.
- Cross-Border Tax
US and UK returns prepared together from one set of workpapers, so credits, tax years and exchange rates line up across both.
- Payroll Services
Payroll for UK companies with US staff and US companies with UK staff, covering PAYE, US withholding and the social security agreement.
Where people go wrong
The Schedule 2 errors we correct most often.
Who files it
- Self-employed US citizens in the UK paying National Insurance on their profits
- Americans in Britain with dividend, interest or capital gains income above the NIIT threshold
- Higher earners whose wages or self-employment income bring additional Medicare tax
- Filers with alternative minimum tax after foreign tax credits are applied
01
Paying US self-employment tax as well as UK National Insurance on the same profits
02
Assuming the foreign earned income exclusion removes self-employment tax
03
Offsetting NIIT with foreign tax credits without disclosing the contested position
04
Forgetting the separate AMT foreign tax credit calculation on Form 6251
Why US UK Tax Returns
Every form is prepared against the official instructions, and every position on it is one we can point to in the Code, the treaty or HMRC's guidance.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
I am a freelancer in London. Why is the IRS asking for self-employment tax?
Because US law charges self-employment tax at 15.3% on a citizen's net earnings wherever the work happens. The totalization agreement allocates coverage to one country, and for a self-employed person living in the UK that is usually the UK. The relief is claimed by obtaining a certificate of coverage from HMRC and attaching a statement to the return. Without the certificate, the tax stays on Schedule 2.
Can UK tax on my dividends cancel out the net investment income tax?
This is unsettled. The 3.8% tax is generally not creditable under domestic law, because it sits outside the chapter of the Code the foreign tax credit applies to. Some filers take a treaty-based position that UK tax should offset it, disclosed on Form 8833, but that position is contested. Whether to take it depends on the amounts at stake and appetite for dispute.
Does Schedule 2 apply to me if I file Form 1040-NR?
It can. Nonresidents who owe certain additional taxes report them on Schedule 2, but several of the taxes it collects do not usually apply to them. Nonresident aliens are outside the net investment income tax, for example, and self-employment tax normally does not reach them. Which lines are relevant depends on the type of US income and the filer's status.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
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