Quick answer: Schedule 1-A is a new IRS form, attached to Form 1040, for four deductions that run from 2025 through 2028: up to $25,000 of tips, up to $12,500 of overtime ($25,000 joint), up to $10,000 of new car loan interest, and an extra $6,000 for each eligible person 65 or older. You can claim them even if you take the standard deduction, but eligibility rules apply and each one shrinks at higher incomes.
The headlines say “no tax on tips” and “no tax on overtime,” but the real rules are narrower. This guide explains who actually qualifies, how much it is worth, and the details that trip people up.
What is Schedule 1-A and who files it?
Schedule 1-A, Additional Deductions, is a form the IRS created for the 2025 tax year. It collects four new deductions from the 2025 federal tax law in one place.
- Part I figures your modified adjusted gross income (MAGI), which sets your phaseouts
- Part II is for qualified tips
- Part III is for qualified overtime
- Part IV is for car loan interest
- Part V is the extra deduction for seniors
- Part VI adds them up and carries the total to Form 1040 line 13b
You only file it if you claim at least one of the four. For most people, MAGI is simply their AGI. It differs mainly if you exclude foreign or U.S. territory income.
No tax on tips: the $25,000 tips deduction
- Deduct up to $25,000 of qualified tips per return
- Tips must be voluntary. Automatic service charges and mandatory gratuities do not count
- Your job must be on the IRS list of occupations that customarily received tips before 2025, such as servers, bartenders, hairstylists and delivery drivers
- Tips must be reported on a W-2, a 1099 or Form 4137. Unreported cash tips do not qualify
- Self employed workers can deduct no more than their net profit from that work
- The deduction starts shrinking when MAGI is over $150,000 ($300,000 joint)
Example: A server earns $30,000 in wages and $18,000 in reported tips. She can deduct the full $18,000. In the 12% bracket that saves about $2,160 of federal income tax, though Social Security and Medicare still apply to her tips.
No tax on overtime: what really counts
Only the extra “half” of time and a half counts, and only when the Fair Labor Standards Act (FLSA) requires the overtime. That usually means hourly or other nonexempt workers paid extra for hours over 40 in a week.
- Deduct up to $12,500, or $25,000 on a joint return
- Your regular rate for those hours does not count, only the premium
- Overtime paid only because of a union contract, company policy or a state daily overtime rule generally does not count
- The same $150,000 and $300,000 phaseout thresholds apply
Example: You earn $30 an hour and work 200 overtime hours at $45. Your qualified overtime is the $15 premium times 200 hours, or $3,000, not the full $9,000 of overtime pay.
The car loan interest deduction
- Deduct up to $10,000 a year of interest on a loan for a personal use vehicle
- The loan must start after December 31, 2024 and be secured by a lien on the vehicle
- The vehicle must be new to you. Used vehicles and leases do not qualify
- It must be a car, van, SUV, pickup or motorcycle under 14,000 pounds with final assembly in the United States
- You must list the vehicle identification number (VIN) on Schedule 1-A
- The deduction shrinks when MAGI is over $100,000 ($200,000 joint)
Check final assembly on the window sticker or with the free NHTSA VIN decoder. Interest you already deduct as a business expense cannot be counted again here.
The extra $6,000 deduction for seniors
Each taxpayer age 65 or older by the end of the year can deduct an extra $6,000, or $12,000 when both spouses qualify on a joint return. For 2026 returns, that means born before January 2, 1962.
- It is added on top of the regular extra standard deduction for age 65
- Each person needs a valid Social Security number
- It shrinks by 6% of MAGI over $75,000 ($150,000 joint)
Example: A single filer, age 67, has MAGI of $95,000. That is $20,000 over the threshold, so the deduction drops by $1,200 to $4,800.
Income limits and phaseouts, in numbers
Each deduction phases out at its own pace:
| Deduction | Phaseout starts (single / joint) | How fast it shrinks | Gone at (single / joint) |
|---|---|---|---|
| Tips | $150,000 / $300,000 | $100 per $1,000 over | $400,000 / $550,000 |
| Overtime | $150,000 / $300,000 | $100 per $1,000 over | $275,000 / $550,000 |
| Car loan interest | $100,000 / $200,000 | $200 per $1,000 over | $150,000 / $250,000 |
| Seniors | $75,000 / $150,000 | 6% of MAGI over | $175,000 / $250,000 (one spouse) or $350,000 (both) |
Where Schedule 1-A fits on your return
- Gather your W-2s, 1099s, pay stubs, Form 4137 if you reported tips yourself, and your lender’s interest statement
- Complete Part I to find your MAGI
- Fill in only the parts that apply to you, using the worksheets in the Form 1040 instructions
- Carry the Part VI total to Form 1040 line 13b and keep your records for at least three years
What employers must report for 2026
Workers can only claim these deductions if their pay records support them. For 2025, the IRS gave employers transition relief. For 2026, the W-2 has new codes:
- Box 12, code TP: total cash tips reported to the employer
- Box 12, code TT: qualified overtime, meaning only the FLSA premium
- Box 14b: the Treasury tipped occupation code for tipped employees
Check now that your payroll system tracks overtime premium and tips separately, before year end W-2s are due. Restaurants should also review Virginia tipped wage rules. Our payroll services handle this setup for restaurants and other tipped businesses.
→Related guideVirginia Minimum Wage and Tipped Employee RulesHow tip credits and tip tracking work for Virginia employers.Does Schedule 1-A lower your Virginia tax?
Short answer: Usually not. Virginia Form 760 starts from your federal AGI, and Schedule 1-A is subtracted after AGI. As of 2026, Virginia has not adopted its own subtraction for tips, overtime or car loan interest.
Virginia does have its own separate age deduction for older residents, with its own income test. We check it alongside the federal senior deduction when we prepare your individual return.
Common Schedule 1-A mistakes to avoid
- Deducting all overtime pay instead of just the premium portion
- Claiming unreported cash tips. Only reported tips qualify
- Filing separately when married. That blocks the tips, overtime and senior deductions
- Claiming a used car or a lease for the car loan interest deduction
- Forgetting the VIN, which the IRS requires every year you claim the car deduction
Self employed with tip income? Your quarterly payments may change, so see our estimated tax guide and the tax deadline calendar.
Schedule 1-A FAQs
Do I need to itemize to use Schedule 1-A?
No. You can claim every Schedule 1-A deduction whether you take the standard deduction or itemize. That is what makes these deductions different from most others.
Does Schedule 1-A lower my adjusted gross income?
No. The total goes on Form 1040 line 13b, after adjusted gross income is figured. It lowers your taxable income, not your AGI, so it does not help with credits or limits that are based on AGI.
Are tips and overtime still subject to Social Security and Medicare tax?
Yes. These are income tax deductions only. Your employer still withholds Social Security and Medicare on all tips and overtime, and self employed workers still owe self employment tax.
Can married couples filing separately claim the tips or overtime deduction?
No. Married taxpayers must file a joint return to claim the tips, overtime or senior deduction. Each person claiming them also needs a valid Social Security number.
Does a used car or a leased car qualify for the car loan interest deduction?
No. The vehicle must be new, with original use starting with you, bought with a loan that began after December 31, 2024. Leases and used vehicles do not qualify.
Is the $25,000 tip limit per person or per return?
Per return. A married couple filing jointly shares one $25,000 limit for tips, even if both spouses earn tips. The overtime limit is different: $12,500 for a single filer and $25,000 on a joint return.
What if my W-2 does not show my overtime separately?
For 2025, employers were not required to show it, so you can use a reasonable method, such as your pay stubs or a statement you request from your employer. Starting with 2026 W-2s, qualified overtime appears in box 12 with code TT.
I forgot to claim these deductions on my 2025 return. Can I still get them?
Usually yes. You can file an amended return on Form 1040-X with Schedule 1-A attached. You generally have three years from the original due date to claim a refund.
Get every deduction you qualify for
The rules for each deduction are detailed, and the income limits catch many households. Our individual tax preparation team checks every Schedule 1-A deduction for you, and our payroll services keep your W-2 reporting right for employees.
This article is general information and not tax advice for your situation. Tax rules change, so talk with a qualified professional before making decisions.
