Highlights of Schedule 1-A, Additional Deductions

A new schedule for tax year 2025 that computes four new H.R. 1 deductions — tips, overtime, car-loan Interest and the senior deduction. Deduction amounts are then reported on page 1 of Form 1040, U.S Individual Income Tax Return.

These are deductions that reduce taxpayers’ taxable income, but not their adjusted gross income (AGI). Modified adjusted gross income (MAGI) is used to determine eligibility and phase-out thresholds for all deductions.

Note that Form W-2, Wage and Tax Statement, and Forms 1099 may not provide all the information needed to calculate the deduction, so supplemental information will likely be needed.

Tips must be considered qualified tips.

In late August 2025, US Treasury released a list with occupations that customarily and regularly received tips prior to Dec. 31, 2024.

Requires a valid Social Security Number (SSN) for the tip earner

If taxpayers are married, they must file as married filing jointly (MFJ) to claim this deduction.

Maximum deduction is $25,000.

Qualified tips received as an employee should be reported either from:

• Form W-2, box 7 (note that for tax year 2026, the Draft Form W-2 has a box 12 code for qualified tips).

• Form 4137, Social Security and Medicare Tax on Unreported Tip Income, line 1(c)

Qualified tips received in the course of a trade or business should be reported from:

• Form 1099-NEC, Nonemployee Compensation, box 1, Form 1099-MISC, Miscellaneous Information, box 3 or Form 1099-K, Payment Card and Third Party Network Transactions, box 1a

• Note that reported tips must not exceed the net profit from the trade or business

Phase-outs: MAGI of $150,000 and $300,000 for MFJ, with a complete phase-out at approximately $400,000 and $550,000 for MFJ.

Overtime must be considered qualified overtime.

Requires a valid SSN for the overtime recipient.

If taxpayers are married, they must file jointly to claim this deduction.

Maximum deduction is $12,500 or $25,000 MFJ.

Qualified overtime compensation that is included in Form W-2, box 1, Form 1099-NEC, box 1 or Form 1099-MISC, box 3 (note that for tax year 2026, the draft Form W-2 has a box 12 code for qualified overtime).

Phase-outs: MAGI of $150,000 and $300,000 for MFJ, with a complete phase-out at approximately $275,000 and $425,000 for MFJ.

Per draft schedule, there is no requirement for married individuals to file jointly to receive this deduction (as opposed to tip, overtime and senior deduction).

Interest must be paid or accrued qualified passenger vehicle loan interest (instructions to come will provide definition for a passenger vehicle).

Vehicle Identification Number (VIN) will need to be provided for each qualifying vehicle.

Indicate where interest is deducted (Sch. C, Sch E or Sch. F or on this Schedule 1-A)

Maximum deduction is $10,000.

Phase-outs: MAGI of $100,000 and $200,000 for MFJ), with a complete phase-out at approximately $150,000 and $250,000 for MFJ.

Requires a valid SSN

If taxpayers are married, they must file jointly to claim this deduction.

$6,000 per taxpayer born before Jan. 2, 1961.

Phase-outs: MAGI of $75,000 and $150,000 MFJ with a complete phase-out at $117,500 and $250,000 MFJ.

Qualified tips:

• Confirm that tips are from a qualified occupation. See current US Treasury guidance.

• Information reporting form that provides the amount of qualified tips (Form W-2 box 7, Form 4137, Forms 1099-NEC/MISC/K)

• Self-employed tips — Confirm tips do not exceed the net profit of the trade/business

Qualified overtime:

• Employer/payor detail sufficient to isolate qualified overtime compensation that’s included in Form W-2 box 1 or certain Forms 1099

Qualified car loan interest:

• VIN(s) of qualified passenger vehicle

• Lender interest statements

• Confirmation interest is not duplicated on other schedules, such as Sch C/E/F

Seniors:

• Date of birth

• SSNs for each eligible spouse