The IRS has released a new draft of Schedule 1-A (Form 1040), titled “Additional Deductions,” effective for the 2025 tax year through 2028, under the One, Big, Beautiful Bill Act.
Schedule 1-A consolidates multiple new deductions in one place — for qualified tips, qualified overtime, car loan interest, and an enhanced senior deduction. This means many taxpayers who couldn’t claim certain deductions before now have a clearer path to reduce their taxable income.
Key Deductions Under Schedule 1-A
| Deduction Type | Maximum Deduction | Income Phase-Out / Limits | Notes / Eligibility Details |
|---|---|---|---|
| Tips | Up to $25,000 annually | Begins phasing out at MAGI (Modified AGI) over $150,000 for single filers; $300,000 for joint filers | Only “qualified tips” count; must come from occupations that “customarily and regularly” received tips as of Dec 31, 2024. |
| Overtime Premium Pay | Up to $12,500 for singles; $25,000 for joint filers | Same MAGI thresholds: $150,000 / $300,000 | Only the premium portion (i.e., the overtime over regular rate) under FLSA count; must be documented on W-2 or comparable report. |
| Car Loan Interest (New Qualified Vehicle) | Up to $10,000 per year | Phase-out starts when MAGI exceeds $100,000 (single) / $200,000 (joint) | Vehicle must be new, U.S.-assembled, for personal use; leases and used cars generally disqualify. |
| Senior Enhanced Deduction | $6,000 per eligible individual; $12,000 for married couples where both are 65+ | MAGI phase-out begins at $75,000 (single) / $150,000 (joint) | Additional to standard/senior standard deduction; must be 65+ by end of taxable year; valid SSNs required. |
How Schedule 1-A Works & Who Qualifies
- Both itemizers and standard deduction claimers can use these deductions. They are below-the-line deductions, meaning they reduce taxable income after Adjusted Gross Income (AGI) and other standard deductions are factored.
- Modified AGI (MAGI) is very important: it’s AGI plus certain excluded or adjusted income (for example foreign income, some territory income, etc.). MAGI determines eligibility for deduction phase-outs.
- Reporting requirements are strict: Tips must be reported on W-2, or for self-employed or contractor types on 1099-NEC/MISC/K; overtime “premium” clearly designated; car loan interest must include the VIN and meet ‘qualified vehicle’ criteria; senior status must be proven.
Who Gains Most From Schedule 1-A
- Service workers (servers, bartenders, hospitality staff) who receive significant tips. The tips deduction could yield big reductions.
- Hourly workers doing overtime who get “time and a half” — the premium pay part now may be deductible.
- New car buyers who purchase applicable new vehicles under qualifying conditions.
- Seniors (65+) especially those on fixed incomes, as the enhanced senior deduction gives additional tax relief.
Many Americans in these categories may receive significant savings — both in reduced tax due and in refund increase — so long as they document everything properly.
Things to Watch & Potential Issues
- These deductions are temporary: effective for tax years 2025 through 2028. If Congress doesn’t renew or extend, they’ll sunset.
- Strict eligibility and documentation are required. Failure to meet criteria (e.g. not reporting tips officially, lacking proof of VIN, not having a valid SSN, improper overtime reporting) may disqualify you.
- Employers and payors have new reporting obligations; jobs that “customarily and regularly” received tips by end of 2024 are being defined by IRS and Treasury.
- Phase-outs mean high income taxpayers may get little or none of these deductions.
The introduction of Schedule 1-A marks a significant win for many American workers, especially those in service, hospitality, retirees, and those paying car loan interest.
For the first time, a single IRS form brings together newly authorized deductions under the One, Big, Beautiful Bill Act, including relief for tips, overtime, senior taxpayers, and new vehicle loan interest. To benefit fully, taxpayers must meet eligibility, ensure proper reporting, and act now while these provisions are active.
The window is open through 2028, so preparing early, keeping clean records, and understanding MAGI will be keys to maximizing your tax savings.
FAQs
Can I use Schedule 1-A deductions if I take the standard deduction instead of itemizing?
Yes — these deductions are designed to be available to both itemizers and standard-deduction filers. They operate below-the-line, meaning they reduce taxable income after AGI and do not require itemizing.
When do the new deductions take effect, and until when?
They are in effect for tax year 2025 through 2028. You will use Schedule 1-A when you file taxes in 2026 for income earned in 2025, etc. Unless extended, they expire after tax year 2028.
What limits apply based on income, and how does MAGI come into play?
Each deduction has a phase-out that begins when your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds — typically $150,000 for singles or $300,000 for married filing jointly (for tips and overtime). Car loan interest phases out at lower MAGI limits ($100k / $200k) and senior deduction phases out at about $75,000 / $150,000.