Schedule 2: the taxes that sit outside the main calculation.
Schedule 2 collects the additional taxes that are not part of the ordinary income tax computation. For people abroad it is where several unwelcome surprises appear — most of them not reduced by the exclusion or by foreign tax credits.
Figures on this page are stated for tax year 2025/26 UK · 2025 US. Thresholds change annually.
Part I and Part II, different animals
Part I covers alternative minimum tax and the repayment of excess premium tax credits. Part II is the longer list: self-employment tax, the additional Medicare tax, the net investment income tax, household employment taxes, and the extra charges on retirement accounts.
Two of these matter disproportionately abroad. Self-employment tax applies to freelance profit at 15.3% and is not reduced by the Foreign Earned Income Exclusion — the totalization agreement, not the exclusion, is what prevents it where you contribute to National Insurance instead.
- Self-employment tax survives the exclusion; a coverage certificate does not
- Net investment income tax cannot be offset by foreign tax credits
- Additional Medicare tax applies above the wage thresholds
The 3.8% nobody budgets for
The net investment income tax adds 3.8% on investment income above the thresholds, and the IRS position is that foreign tax credits cannot be used against it. That makes it one of the few US charges a UK-resident American genuinely pays out of pocket, on top of UK tax on the same income.
It surfaces most often on a property sale, a portfolio disposal or a bonus year. Where a large gain is coming, its timing is a real planning lever.
Questions we get about this
Usually because of Schedule 2. Foreign tax credits offset income tax, but they do not offset the net investment income tax and they do not offset self-employment tax.
These charges sit outside the credit system by design, which is why they survive an otherwise clean return.
Where you pay UK National Insurance instead, yes - the totalization agreement assigns you to one system, but only with a certificate of coverage attached to the return.
Without the certificate, both charges can apply to the same profit.
No. The Foreign Earned Income Exclusion reduces income tax on earned income only; self-employment tax is calculated on the full profit before the exclusion.
It is the most common reason a return showing no income tax still produces a bill.
When modified adjusted gross income exceeds the threshold and there is investment income - interest, dividends, rents, and capital gains including property.
Property sales and portfolio disposals are where it most often appears for people abroad.
Last reviewed · Figures stated for tax year 2025/26 UK · 2025 US. Thresholds and rates change annually — check figures against the current tax year before relying on them.
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