Every year, taxpayers compare what they owe in taxes to what they've already paid to determine whether they'll get a refund or will have to send more money to the IRS. For the first time in 2018, taxpayers are using newly formatted tax forms that require them to use several new schedules to account for things that used to go on the main 1040 form itself.
Schedule 5 is crucial for taxpayers because it includes payments and credits that will go toward reducing your tax liability. Accounting for these items correctly can cut your tax bill or give you a bigger refund, but making mistakes can be costly. Below, we'll take a closer look at Schedule 5 and what you're allowed to claim on this key tax form.
Image source: IRS.
Line 66: Estimated tax payments and previous-year overpayments
Most people have money withheld from their paychecks that goes toward prepaying the taxes they calculate on their returns every year. Paycheck withholding toward federal income tax still goes directly on Form 1040. However, if you don't have enough money withheld from a paycheck or other sources, then making quarterly estimated tax payments is the best way to avoid costly penalties. The amounts you pay in estimated tax go on Line 66.
In addition, some people choose not to receive refunds and instead apply any money they would've gotten as a refund toward their tax liability for the following year. If you did this, then the amount you pushed forward also gets included on Line 66.
Line 70: Net premium tax credit
Line 70 deals with premium tax credits , which were put into place as part of the Affordable Care Act, also known as Obamacare. The credit is available to Americans who qualify based on income and other eligibility standards, and its intent is to help offset some of the costs of obtaining healthcare coverage.
There are two situations in which you'll see numbers go on Line 70. The first is if you qualify for credits but choose not to receive them in advance, instead simply waiting until you file your return to get the credits as part of your tax refund. The second is if you did receive advance premium tax credit payments, but your actual credit amount turned out to be higher than you originally anticipated. Either way, Form 8962 will help you run through the numbers and eventually determine what figure goes on Line 70.
Line 71: Amount paid with extension request
If you filed for an extension, then Line 71 is where you put the amount of tax you paid along with the request. Six-month extensions are automatic when you file a request, but they don't give you extra time to pay your tax, only to file your return. So if you expect to owe tax when you eventually file your return, you'll want to make a payment with your extension request to avoid penalties, and you'll include that amount here.
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Line 72: Excess Social Security and Railroad Retirement tax
There's a maximum amount of wages on which Social Security and Railroad Retirement payroll taxes are collected, and as long as you work for only one employer during the year, then there won't generally be any confusion about when that maximum kicks in. However, if you work two jobs, neither employer will know about the other, so if you make more in total than the wage base maximum, you could have too much Social Security payroll tax withheld. If that's the case, then Line 72 is where you can get the excess back.
Line 73: Federal fuel tax credit
Most people pay a federal tax on gasoline, diesel, and other fuels at the pump when they fill up. But if you use your vehicle for certain purposes, then the fuel isn't subject to tax, and you can get a credit for the taxes paid. These purposes include farming, off-highway transportation, commercial fishing, busing, export, and household use such as for heating, lighting, and cooking. Publication 510 offers the full list of exemptions and how to calculate the appropriate credit.
Line 74: Other credits
Finally, Line 74 includes any credits not listed elsewhere. They include credit for taxes that a mutual fund or other investment company pays on undistributed long-term capital gains, as well as credit for a portion of healthcare insurance premiums that those ages 55 to 65 who receive benefits from the Pension Benefits Guaranty Corporation pay for coverage.
Don't short-change yourself
If you've already made payments or earned valuable tax credits, then you deserve to take them into account in calculating your tax bill. Schedule 6 makes that possible, and using it to the utmost can make a refund check a lot bigger.
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