The IRS has published the draft Schedule 1-A, "Additional Deductions," for Form 1040, implementing tax provisions from the One Big Beautiful Bill Act that will significantly impact next filing season. Tax practitioners should familiarize themselves with these changes now, as the new schedule introduces deductions for tips, overtime compensation, car loan interest, and enhanced senior deductions.
This release follows the recent draft Form W-2 with new fields and box codes supporting these exemptions. The draft Schedule 1-A references these W-2 modifications and mentions forthcoming instructions for Forms 1099-NEC, 1099-MISC, and 1099-K that haven't been released yet.
Tips Deduction Mechanics
The no-tax-on-tips provision phases out at $150,000 modified adjusted gross income for single filers and $300,000 for joint filers. Practitioners should note that clients must have a valid Social Security number and meet specific W-2 thresholds. When Form W-2 Box 5 shows $176,100 or less, qualified tips from Box 7 are entered directly. Higher amounts require consultation with the pending instructions.
For self-employed clients receiving qualified tips through business operations, amounts from Form 1099-NEC Box 1, Form 1099-MISC Box 3, or Form 1099-K Box 1a apply, but cannot exceed net business profit. Multiple business situations will require additional guidance from the forthcoming instructions.
Overtime and Vehicle Loan Provisions
The overtime deduction caps at $12,500 annually ($25,000 for joint filers). Qualified overtime compensation from Form W-2 Box 1, Form 1099-NEC Box 1, or Form 1099-MISC Box 3 feeds into this calculation. Like tips, valid Social Security numbers and joint filing requirements apply for married taxpayers.
Car loan interest deductions max out at $10,000 annually, but phase out starting at $100,000 MAGI ($200,000 for joint filers). This provision specifically targets passenger vehicle loan interest, requiring documentation of qualified payments or accruals.
Senior Deduction Details
Taxpayers 65 and older can claim an additional $6,000 deduction, though this phases out beginning at $75,000 MAGI ($150,000 for joint filers). The enhanced senior deduction also requires joint filing for married couples.
Implementation Considerations
All major deductions require joint filing for married taxpayers, creating potential planning opportunities around filing status decisions. The Social Security number requirement for tips, overtime, and car loan deductions may affect clients with ITIN situations.
Practitioners should monitor the IRS website for the complete instructions and final form versions, as the current draft references several unreleased guidance documents. The timing suggests final forms and instructions should be available well before the filing season begins.
Access to Draft Forms
The draft Schedule 1-A and previously released draft Form W-2 are available on the IRS website at irs.gov in the forms and instructions section. Practitioners should bookmark these resources and check regularly for updates to the instructions and any revisions to the draft forms as the filing season approaches.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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