Tax payments, credits, and adjustments
Injured spouse and innocent spouse
Injured spouse relief can help taxpayers reclaim their share of a federal tax refund that was offset to pay a spouse’s past-due debt, i.e., past due child support, other federal agencies, past-due state income taxes, and state unemployment obligation debt. Taxpayers must have filed a joint return on which a refund must have been calculated. Married persons who file separate returns in community property states may also qualify for relief. See IRS Publication 555 for more information. Claims are made on IRS Form 8379.
Like the injured spouse, the innocent spouse relief is for taxpayers who have filed a joint tax return. The understated tax must be attributable to erroneous items of the other spouse, and the requesting spouse must show that they did not know and had no reason to know of the understatement when the return was signed. IRS Publication 971 has all the details.
If any part of the tax, interest, and penalties doesn’t qualify for innocent spouse relief, both parties are liable for that portion of the bill.
Innocent spouse relief and separation of liability relief must be requested on Form 8857 no later than 2 years after the IRS first began collection activity against the requesting spouse. Equitable relief has no 2-year limit: it can be requested as long as the IRS can collect the tax (generally 10 years), or, for a refund, within the refund period.
- The IRS is required to inform the non-requesting spouse or ex-spouse that the requesting spouse has applied for innocent spouse relief.
- IRS Form 8857 is used to claim innocent spouse claims. If the requesting spouse prevails, the IRS will collect the tax, interest, and penalties from the non-requesting spouse or ex-spouse.
Unemployment tax and household employee tax
The Federal Unemployment Tax Act (FUTA) is imposed on employers. The tax is 6.0% of the first $7,000 of wages paid to each employee (0.6% after the maximum 5.4% credit for state unemployment tax). Under the general test, employers are required to pay unemployment taxes if they pay wages of $1,500 or more in any quarter in 2024 or 2025; household employers have a separate test, below. The employee does not pay any portion of FUTA. A household worker is the taxpayer’s employee if the taxpayer can control not only what work is done but how it is done; a self-employed worker who controls how the work is done, or a worker an agency supplies and controls, isn’t. If a household employee is paid cash wages of $2,800 or more in 2025, the wages are subject to Social Security and Medicare taxes. If the employer pays total cash wages of $1,000 or more to household employees in any calendar quarter, the wages are also subject to FUTA taxes. The employer can either submit taxes via payroll or calculated on Schedule H to go onto Schedule 2, Form 1040. Penalties are applied when an employer fails to make a timely deposit. The penalties range from 2% to 10%, depending on the number of days late that the deposit was made, and rise to 15% for amounts still unpaid more than 10 days after the first IRS notice. To learn more about employment taxes, read the IRS Tax Topics on household employment for more.
Self-employment (SE) taxes for taxpayers and clergy
Self-employment tax (SECA, the self-employed counterpart of FICA) is imposed on net earnings from self-employment. The self-employed taxpayer pays both the employee’s share and the employer’s share of the Social Security and Medicare taxes. In computing income tax (not the self-employment tax itself), a self-employed person is entitled to deduct an amount equal to one-half of the self-employment tax actually owed, not one-half of net self-employment income. Self-employment tax is 15.3% of net earnings from self-employment (12.4% social security on net earnings up to the $176,100 wage base for 2025, reduced by any wages already subject to social security tax, plus 2.9% Medicare on all net earnings), computed on 92.35% of net self-employment income; the above-the-line deduction equals 50% of that SE tax figured on Schedule SE. A taxpayer whose net earnings from self-employment (92.35% of net profit) are less than $400 is not subject to self-employment taxes. The income exclusion for self-employment is different from gross income for ministers and clergy members: Clergy members are taxed as a W-2 employee of their church, and as self-employed for Social Security and Medicare purposes. Earnings for ministerial services are exempt from SE tax if the minister or clergyperson is a member of a religious order who has taken a vow of poverty, or requests an exemption from SE tax (Form 4361) and the IRS approves it.
The fair rental value of a minister’s parsonage (or housing allowance) is excluded from gross income for income tax purposes, but it is included in net earnings from self-employment and is therefore subject to self-employment tax. Ministerial earnings are also exempt from SE tax if the minister or clergyperson is subject only to the social security laws of a foreign country under the provisions of the Social Security agreement between the United States and the foreign country. Read the IRS Tax Topics on minister and clergy taxes for detailed information.
Additional Medicare tax
The additional Medicare tax is a 0.9% tax on Medicare wages, self-employment income, and railroad retirement (RRTA) compensation above a threshold set by filing status: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for every other filing status, including qualifying surviving spouse. The thresholds are not indexed for inflation. On a joint return, both spouses’ wages and self-employment income are combined.
An employer must withhold the additional 0.9% from wages it pays an employee above $200,000 in a calendar year, regardless of the employee’s filing status or wages from other employers. There is no employer match. Because withholding ignores filing status, it can fall short: spouses earning $150,000 and $175,000 have nothing withheld but owe 0.9% on the $75,000 above the $250,000 joint threshold ($675). Withholding a taxpayer doesn’t owe is credited on the return.
Self-employment income is subject to the tax too. When a taxpayer has both, wages reduce the threshold that applies to self-employment income, and a self-employment loss is ignored. Form 8959 figures the tax and the credit for any additional Medicare tax withheld; the tax goes on Schedule 2 (Form 1040), line 11.
Uncollected Social Security and Medicare tax
When an employer didn’t collect the employee’s share of Social Security and Medicare tax, the employee pays it with the return, in Part II (Other taxes) of Schedule 2 (Form 1040):
- Unreported tips (Form 4137). An employee must report cash and charge tips of $20 or more in a month to the employer by the 10th of the next month. Tips not reported, and allocated tips in Form W-2, box 8 (unless records show less was received), are added to wages on Form 1040, line 1c, and Form 4137 figures the 6.2% Social Security and 1.45% Medicare tax on them (Schedule 2, line 5). Tips under $20 in a month from one employer aren’t subject to these taxes. Not reporting tips to the employer can bring a penalty of 50% of the tax on them.
- Employee treated as a contractor (Form 8919). A worker paid as an independent contractor who believes they were an employee, and had no Social Security or Medicare tax withheld, pays only the employee’s share (6.2% Social Security and 1.45% Medicare) on Form 8919 instead of self-employment tax. The worker needs a reason code: an IRS determination that they’re an employee (such as a Form SS-8 ruling), a Form SS-8 filed by the date the return is filed, or a W-2 and a 1099 from the same firm for amounts that should have been wages. The wages go on Form 1040, line 1g, and the tax on Schedule 2, line 6.
- Tax the employer couldn’t collect (Form W-2, box 12). When an employee’s pay wasn’t enough to cover the tax on reported tips, the employer shows the uncollected Social Security tax with code A and the uncollected Medicare tax with code B. Codes M and N show the same two taxes on group-term life insurance over $50,000 provided to a former employee. The employee reports these amounts on Schedule 2, line 13.
Excess social security withholding credit
If any one employer withheld too much Social Security, tier 1 RRTA, or tier 2 RRTA tax, the excess withholding cannot be claimed as a payment or credit on the tax return. The employer should reimburse the taxpayer for the excess taxes paid. If the employer fails to do so, then IRS Form 843 should be filed to claim a refund, with a statement from the employer (if possible) and a copy of Form W-2. A taxpayer with two or more employers whose combined 2025 wages exceeded the Social Security wage base ($176,100) may have had too much Social Security or tier 1 RRTA tax withheld in total; the excess is claimed as a credit on Schedule 3 (Form 1040). Excess tier 2 RRTA tax from two or more railroad employers is refunded by filing Form 843 with copies of the Forms W-2.
Other taxes on Schedule 2
Schedule 2 (Form 1040) carries the taxes owed besides regular income tax. Part I has the alternative minimum tax and additions to tax such as the repayment of excess advance premium tax credit (Form 8962, taught in Other credits and deductions). Part II, “Other taxes,” has:
- Self-employment tax, household employment taxes, the additional Medicare tax, and uncollected Social Security and Medicare tax (this page)
- The net investment income tax and, on Form 5329, the 10% additional tax on early retirement distributions and the excise tax on a missed required minimum distribution (Alternative tax and retirement rules, which also teaches the AMT)
- Form 5329’s 6% tax on excess IRA contributions (Individual and itemized deductions) and 10% additional tax on the earnings in a nonqualified Coverdell or 529 distribution (Divorce, property, and education planning)
- The 20% additional tax on HSA distributions not used for qualified medical expenses (Form 8889), except distributions after the account holder turns 65, becomes disabled, or dies
- Recapture taxes, such as recapture of other credits or of a federal mortgage subsidy
First-time homebuyer credit repayment. The 15-year repayment of the credit for homes bought in 2008 ended with the 2024 return, the last year Form 5405 was filed, so a 2025 return carries none; line 10 of the 2025 Schedule 2, which held it, is reserved.
Amended returns for refunds and adjustments
Returns that are filed before the due date are considered to be filed on April 15th. If the taxpayer had an extension and filed before the extended due date, the return is treated as filed on the date the IRS received it. An amended return for a claim of refund must be filed within three years after the original return was filed (or within two years after the tax was paid, if later). For returns that have balances due and are filed early, interest and penalties on the unpaid balance do not begin to accrue until the day after the filing deadline.
Adjustments to income and the Schedule 1-A deductions
Adjustments to income are figured in Part II of Schedule 1 (Form 1040) and subtracted from total income to arrive at adjusted gross income (AGI): they’re the “above-the-line” deductions. They include educator expenses, the HSA deduction, the deductible half of self-employment tax, the penalty on early withdrawal of savings, alimony paid under pre-2019 agreements, the traditional IRA deduction, and student loan interest (Business, other income, and adjustments lists them all). A Roth IRA contribution is never deductible, so it isn’t an adjustment. An adjustment helps whether or not the taxpayer itemizes, and because it lowers AGI it also lowers every limit figured from AGI or modified AGI, such as the 7.5% floor on medical expenses and the phase-outs of credits. Mortgage interest, medical expenses, and charitable contributions are itemized deductions on Schedule A instead: taken after AGI, and only by a taxpayer who itemizes.
Schedule 1-A deductions, available for 2025 through 2028, come after AGI (Form 1040, line 13b). They reduce taxable income but not AGI, and the taxpayer can claim them with either the standard deduction or itemized deductions. To claim the tips, overtime, or senior deduction, a married taxpayer must file jointly, and the person who qualifies needs a valid Social Security number. Each deduction phases out by modified AGI (AGI plus certain excluded foreign and U.S. territory income):
- Qualified tips: up to $25,000 per return, reduced by $100 for each full $1,000 of modified AGI over $150,000 ($300,000 if married filing jointly).
- Qualified overtime: up to $12,500 ($25,000 if married filing jointly), with the same reduction.
- Car loan interest: up to $10,000 of interest, with the interest deductible after that limit reduced by $200 for each $1,000 or part of $1,000 of modified AGI over $100,000 ($200,000 if married filing jointly).
- Enhanced deduction for seniors: $6,000 for each taxpayer age 65 or older, each $6,000 reduced by 6% of modified AGI over $75,000 ($150,000 if married filing jointly).