Schedule 2: where the extra taxes live.
Since the 1040 went modular, the taxes beyond the basic computation moved onto Schedule 2 — the alternative minimum tax, the net investment income tax, additional Medicare tax, self-employment tax. For Americans abroad, this schedule is where 'zeroed out by credits' quietly stops being true.
Figures relate to tax year 2025 (US) · 2025-26 (UK)
What lands on the schedule
Part one carries the alternative minimum tax and repayments of excess premium credits. Part two collects the rest: self-employment tax, the 3.8% net investment income tax on higher earners' investment income, the 0.9% additional Medicare tax on high wages, and various recapture items.
Each has its own trigger and its own relief path — and several are indifferent to the foreign tax credits that protect the rest of the return.
- AMT — a parallel computation with its own credit rules
- NIIT — 3.8% on investment income above thresholds
- Additional Medicare tax on high employment income
- Self-employment tax, unless totalization exempts it
The expat pressure points
The net investment income tax is the classic surprise: foreign tax credits generally cannot offset it, so a US person with UK investment income can owe it even when UK tax far exceeds US tax overall.
Self-employment tax has the opposite answer — a UK National Insurance coverage certificate under the totalization agreement removes it entirely. Knowing which lever exists for which line is most of the work.
Primary sources
Official guidance from the IRS, FinCEN and GOV.UK. Thresholds and rates on those pages are updated annually — check the current tax year before relying on a figure.
Questions, Answered.
What clients ask about 1040 schedule 2
Why do I owe US tax when my credits cover everything?
Usually because the balance is NIIT or another Schedule 2 item that regular foreign tax credits don't reach. The cure is structural — managing investment income and thresholds — rather than more credits.
I'm self-employed in the UK. Do I owe US self-employment tax?
By default the US would charge it on worldwide self-employment profit — but the US–UK totalization agreement assigns you to one social security system. Paying UK National Insurance with a coverage certificate generally exempts you from the US side.
Does AMT still catch people abroad?
Far fewer since the exemption rose, but it surfaces with incentive stock options, large capital gains and certain deductions. The AMT allows its own foreign tax credit, so exposure is usually manageable — once it's noticed.
What income triggers the net investment income tax?
Investment income — interest, dividends, capital gains, rents — once modified income passes $200,000 for single filers or $250,000 married filing jointly. The thresholds aren't inflation-indexed, so more expats drift into it every year.
Can I avoid Schedule 2 taxes by filing separately from my spouse?
Sometimes the opposite: married-filing-separately thresholds are lower — $125,000 for NIIT — and several credits disappear. Filing status is a computation, not a habit; we run both ways when it's close.
Next Step.
Tell us what you hold — the scope and a fixed fee follow in writing.