IRS Schedule 1-A Explained (2025 Taxes Filed in 2026): Tips, Overtime, Car Loan Interest, and the Senior Deduction

If you are filing a 2025 federal tax return (the return most people file in 2026), there is a brand-new form to know about: Schedule 1-A (Form 1040), Additional Deductions. It was created to consolidate four recently enacted deductions into one place so taxpayers can reduce taxable income even if they claim the standard deduction. (IRS)

This matters because these new deductions are often discussed in headlines as “no tax on tips” or “no tax on overtime,” but in practice they are deductions that must be calculated and reported correctly. In many cases, you will also need good records because 2025 tax forms were not fully updated to separately identify certain amounts. (IRS)

As the IRS announced, the 2026 filing season opens January 26, 2026, and most taxpayers have until April 15, 2026 to file 2025 returns.

Quick takeaways

• Schedule 1-A is new for the 2025 tax year and attaches to Form 1040, 1040-SR, or 1040-NR.

• It calculates four deductions:

  1. No Tax on Tips

  2. No Tax on Overtime

  3. No Tax on Car Loan Interest

  4. Enhanced Deduction for Seniors (65+)

• These deductions reduce taxable income (not AGI) because they flow from Schedule 1-A, line 38 to Form 1040/1040-SR line 13b (or 1040-NR line 13c).

• You can generally claim these deductions whether you take the standard deduction or itemize (with specific rules for each deduction).

What is Schedule 1-A?

Schedule 1-A (Form 1040) is titled “Additional Deductions.” It is an attachment used to calculate and claim the four new deductions listed above, and then carry the total to your main tax return.

A key detail: Schedule 1-A uses MAGI (Modified Adjusted Gross Income) for phaseouts. The schedule starts by computing MAGI in Part I as your AGI plus certain add-backs (such as excluded Puerto Rico income and certain amounts from Forms 2555 and 4563, if applicable). (IRS)

Part II: No Tax on Tips (how it really works)

1) You must be in an eligible tipped occupation

Schedule 1-A specifies that the deduction is only for qualified tips received in an occupation listed at the IRS “TippedOccupations” list (occupations that customarily and regularly received tips on or before December 31, 2024). (IRS)

2) You still report tips, then claim a deduction

The IRS is explicit that tips are generally included in income and subject to income tax and payroll taxes. Schedule 1-A is where you compute the deduction you may be eligible to claim.

3) What counts as “qualified tips”

IRS guidance explains qualified tips as voluntary cash or charged tips received from customers (including shared tips), but there are important exclusions such as mandatory service charges unless customers can change or remove them without consequence. (IRS)

4) Married taxpayers: joint filing requirement

Schedule 1-A states that if married, you must file jointly to claim the tips deduction, and you (or your spouse receiving the tips) must have a valid SSN.

5) 2025 paperwork may not be “clean,” so records matter

The IRS notes that for tax year 2025, certain forms were not updated to separately identify tips that qualify, so taxpayers may need to rely on other documentation and calculations.

Tips deduction example (simple, with the Schedule 1-A math)

Assume:

• Qualified tips = $25,000

• MAGI (Schedule 1-A line 3) = $152,400

• Filing status = Single

On Schedule 1-A:

• Line 7 = $25,000 (cap)

• Line 10 = $152,400 − $150,000 = $2,400

• Line 11 = $2,400 ÷ $1,000 = 2.4, then round down to 2

• Line 12 = 2 × $100 = $200

• Line 13 = $25,000 − $200 = $24,800 (IRS)

Part III: No Tax on Overtime (focus on the “overtime premium”)

1) Only the overtime premium generally qualifies

IRS guidance explains that “qualified overtime compensation” is generally the portion of overtime pay above the regular rate (often described as the “half” portion of “time-and-a-half” required by the Fair Labor Standards Act). (IRS)

2) Limits and phaseouts

• Max deduction: $12,500 (or $25,000 MFJ)

• Phaseout starts at MAGI over $150,000 (or $300,000 MFJ)

3) Married taxpayers: joint filing requirement

Schedule 1-A states that if married, you must file jointly to claim the overtime deduction, and the spouse receiving the overtime must have a valid SSN.

Overtime example (using the Schedule 1-A phaseout method)

Assume:

• Qualified overtime compensation = $12,500

• MAGI = $151,700

• Filing status = Single

On Schedule 1-A:

• Excess = $1,700

• Divide by $1,000 = 1.7, round down to 1

• Reduce deduction by 1 × $100 = $100

• $12,500 − $100 = $12,400 (IRS)

Part IV: No Tax on Car Loan Interest (and why VINs matter)

This deduction is for qualified passenger vehicle loan interest (QPVLI) on a qualifying personal-use vehicle purchased in 2025 with a qualifying loan.

Key eligibility points to know

IRS instructions explain the interest generally must be tied to a loan that:

• Originated after December 31, 2024

• Was used to purchase an applicable passenger vehicle (lease payments do not qualify)

• Is for personal use

• Is secured by a first lien on the vehicle (IRS)

The IRS also emphasized in its guidance that this deduction applies to new made-in-America vehicles for personal use, and the proposed rules address how to determine whether final assembly occurred in the United States. (IRS)

You must include the VIN on the return

The instructions state you must include the VIN of the applicable passenger vehicle (and each VIN if multiple vehicles) to take the deduction.

The $10,000 cap and the MAGI phaseout

• Maximum: $10,000

• Phaseout starts at MAGI over $100,000 (or $200,000 MFJ), with “all other filing statuses” using $100,000. (IRS)

Important detail for business owners

Schedule 1-A Part IV has columns for interest:

• (ii) interest deducted on Schedule C/E/F

• (iii) interest claimed on Schedule 1-A (the remainder after removing business deductions)

This helps prevent double-dipping when a portion of vehicle interest is already deducted in a business return context.

Car loan interest example (showing the rounding rule)

Assume:

• QPVLI eligible for Schedule 1-A = $8,400

• MAGI = $112,200

• Filing status = Single

On Schedule 1-A:

• Threshold = $100,000

• Excess = $12,200

• Divide by $1,000 = 12.2, then round up to 13

• Reduction = 13 × $200 = $2,600

• Deduction = $8,400 − $2,600 = $5,800

That “round up” rule is a big reason why having the right MAGI and interest numbers matters. (IRS)

Part V: Enhanced Deduction for Seniors (65+)

This is an additional $6,000 deduction per eligible individual (or $12,000 if both spouses qualify on a joint return). The IRS notes this is in addition to the existing senior standard deduction benefit. (IRS)

Eligibility highlights

• You (and your spouse, if applicable) must have a valid SSN.

• If married, you must file jointly to claim it.

• For the 2025 return, the schedule applies to taxpayers born before January 2, 1961 (that is the form’s operational test for being 65+ in 2025).

Phaseout mechanics (straight from Schedule 1-A)

The schedule reduces the $6,000 amount by 6% of MAGI over the threshold:

• Threshold: $75,000 (or $150,000 MFJ)

Example (Single):

• MAGI = $90,000

• Excess over $75,000 = $15,000

• 6% of $15,000 = $900

• $6,000 − $900 = $5,100 (IRS)

Common Schedule 1-A mistakes we are already watching for

1. Not reporting income correctly because you assume “no tax on tips” means “do not report tips.” The IRS guidance and instructions make clear tips and overtime are still generally includible in income; the benefit is a deduction if you qualify.

2. Using mandatory service charges as “qualified tips.” The IRS distinguishes between voluntary tips and mandatory amounts.

3. Missing the joint filing requirement for tips, overtime, and the senior deduction.

4. Forgetting the VIN requirement for the car loan interest deduction.

5. Mixing business and personal vehicle interest without properly separating amounts already deducted on Schedule C/E/F.

6. Misapplying the rounding rule in phaseouts:

• Tips and overtime phaseouts use a “divide by $1,000 and round down” method.

• Car loan interest uses “divide by $1,000 and round up.” (IRS)

What to gather now (so we can claim Schedule 1-A correctly)

Here is a practical checklist to make Schedule 1-A smoother:

If you may qualify for the tips deduction

• W-2(s), especially amounts in Box 7 (and any allocated tips in Box 8)

• Your tip records, and any reporting you made to your employer (if applicable) (IRS)

• Confirmation that your occupation is on the IRS tipped occupation list (IRS)

If you may qualify for the overtime deduction

• Year-end pay stubs or payroll statements that identify the overtime premium (or enough detail to compute it), since IRS guidance notes the overtime premium is what generally qualifies (IRS)

If you may qualify for car loan interest

• Loan statements showing interest paid

• Vehicle purchase documents

• VIN(s), because they must be reported on the return

If you may qualify for the senior deduction

• Proof of birthdate and valid SSN for each eligible person (IRS)

If you are a new client, White Sands Tax Services can also walk you through a secure upload workflow using the client portal so you are not emailing sensitive documents.

How we can help

Schedule 1-A is simple on paper, but many real-life returns involve:

• multiple employers,

• multiple tipped occupations,

• overtime that is not clearly broken out on forms,

• self-employment income and expenses,

• and state return considerations.

White Sands Tax Services provides tax preparation, bookkeeping, and year-round support for individuals, families, and small businesses, including remote service across the U.S.

If you want help determining whether you qualify for any Schedule 1-A deductions and documenting them correctly, the best next step is to schedule a consultation.

FAQ

Do these Schedule 1-A deductions reduce AGI?

They reduce taxable income, not AGI. Schedule 1-A totals on line 38 and flows to Form 1040/1040-SR line 13b (or 1040-NR line 13c). (IRS)

Can I claim these deductions if I itemize?

The Schedule 1-A instructions explain you can claim these deductions whether you take the standard deduction or itemize (with specific rules per deduction). (IRS)

Are tips and overtime still subject to payroll taxes?

The IRS instructions emphasize tips are generally subject to income tax and Social Security and Medicare taxes; Schedule 1-A is a deduction mechanism, not an automatic exclusion. (IRS)

How do I know if my occupation qualifies for the tips deduction?

The IRS maintains a list of occupations that customarily and regularly received tips on or before December 31, 2024, and only tips from those occupations are treated as “qualified tips” for this deduction. (IRS)

Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or accounting advice. Tax rules and IRS guidance can change, and eligibility depends on your full facts and filing status.