Which four specific deductions are reported on Schedule 1‑A and what are their eligibility rules?
Executive summary
Schedule 1‑A is the new, temporary IRS attachment created to report four deductions enacted by the One, Big, Beautiful Bill — an enhanced deduction for seniors, an exclusion for certain tips, an exclusion for certain overtime pay, and a limited deduction for car‑loan interest — each with its own eligibility rules and phaseouts tied to modified adjusted gross income (MAGI) [1] [2] [3]. The provisions are temporary for tax years 2025–2028 and the IRS has issued draft guidance and forms that practitioners say carry detailed but sometimes narrow eligibility criteria that taxpayers must document carefully [4] [5] [6].
1. The enhanced “deduction for seniors” — who qualifies and how much
The senior deduction gives many taxpayers age 65 and older a fixed additional deduction that reduces taxable income, with coverage described as up to $6,000 per eligible taxpayer for 2025 (as part of the OBBBA provisions) and available only for the 2025–2028 tax years unless extended by Congress [7] [8] [4]. The IRS and reporting note that age is the primary qualifying factor (65+), that the deduction is claimed on Schedule 1‑A, and that taxpayers must file the new form to capture the benefit rather than relying on Schedule A or other lines of Form 1040 [2] [4]. The public reporting also flags that the senior break is temporary and that software and IRS systems are expected to calculate eligibility but some taxpayers without modern software may need to determine qualification manually [8] [5].
2. “No tax on tips” — what counts, documentation and limits
Schedule 1‑A provides an exclusion (deduction) for qualified tip income reported on W‑2s or the relevant 1099s, allowing taxpayers to remove certain tip amounts from taxable income so long as they meet the statute’s definition of “qualified tips” and follow IRS reporting rules [6] [1]. The draft guidance shows transitional mechanics for 2025 — employers and IRS forms may not fully reflect new reporting codes for that year, so employees may need to use their own records to substantiate qualified tip amounts, and nonemployees must rely on 1099 reporting [6] [5]. Practitioners warn that the tip exclusion phases out as MAGI rises, subject to thresholds reported in draft materials, and that accurate records are crucial because the IRS will treat excluded tips as tied to reported gross income on W‑2s or 1099s [9] [6].
3. “No tax on overtime” — employer reporting, employee records, and phaseouts
The overtime exclusion operates similarly to the tips exclusion: it excludes certain “qualified overtime compensation” from taxable income when properly reported and claimed on Schedule 1‑A [10] [6]. Draft W‑2 guidance contemplates a new box or code to identify qualified overtime, but for the initial tax year employees may need to rely on pay records and Box 1 because employers and forms are transitioning [6]. Like the tip deduction, the overtime exclusion is subject to MAGI‑based phaseouts and filing requirements that practitioners say complicate claims for high‑income earners and mixed filing statuses [10] [9].
4. Car‑loan interest deduction — scope, caps and a narrow eligibility window
Schedule 1‑A allows a deduction for interest on certain car loans, but the carve‑out is narrow: drafts and tax commentary indicate an upper limit (up to $10,000 of eligible interest in some descriptions) and strict eligibility rules that restrict who can claim it, with phaseouts tied to MAGI and filing status [9] [4]. Sources emphasize this deduction is not the broad mortgage‑interest style break taxpayers might expect — eligibility criteria and documentation standards will be tighter, and practitioners describe the provision as “narrow in terms of eligibility” requiring detailed records of loan terms and qualifying vehicles or uses [9] [4].
5. Common rules, uncertainties and what to watch
All four Schedule 1‑A deductions reduce taxable income on Form 1040 and are governed by MAGI calculations and phaseout thresholds described in draft Treasury/IRS releases and practitioner guides; thresholds and phaseout mechanics — frequently cited in drafts as $150,000 and $300,000 examples — may vary by deduction and filing status [11] [9]. The IRS has released draft forms and transitional guidance for 2025 returns filed in 2026, but many operational details remain in flux and taxpayers are advised to keep careful records because the IRS will rely on wage and information reporting and MAGI calculations to determine eligibility [6] [10] [5]. Commentators note the political framing (OBBBA/“One, Big, Beautiful Bill” or Working Families Tax Cut) influences coverage and that the form is temporary unless Congress acts to extend it [1] [3] [5].