New client with OBBBA deductions? Review before you roll forward

A new client hands you a 2025 Form 1040 with Schedule 1-A, Additional Deductions, attached. They’ve claimed one or more of the new One Big Beautiful Bill Act (OBBBA) deductions for qualified tips, qualified overtime, qualified car loan interest or the enhanced senior deduction.

If you did not prepare the 2025 return, do not assume the deduction is valid just because it cleared the software. Check the support before you rely on it, answer an IRS notice, consider an amendment or roll it forward.

The first filing season under the OBBBA is now behind us, and Treasury reports that taxpayers have already claimed more than $82 billion in individual relief through the April deadline. This makes Schedule 1-A a high impact area in any new client review.

Start with the schedule, not the story

Schedule 1-A is now the hub for the four temporary additional deductions reported on Form 1040, Line 13b. It brings together:

• Qualified tips
• Qualified overtime compensation
• Qualified car loan interest
• The enhanced senior deduction

Taxpayers can claim these amounts whether they itemize or take the standard deduction.

With a new client, don’t settle for “the software allowed it.” Tie the Schedule 1-A entries back to the underlying supporting documents: Forms W 2, 1099 NEC, 1099 K and 4137, payroll statements, year end paystubs, lender statements, VIN and vehicle data, and proof of age and filing status.

Your goal is not to redo the return. Your goal is to determine whether the deduction is supported, missing, overstated or needs follow up before you rely on the prior year file.

The flashy deductions have traps and limits

Qualified tips are not a blanket exclusion for everyone who receives tips. The deduction applies to voluntary cash or charged tips received in an occupation that the IRS identifies as customarily and regularly tipped. It’s capped at $25,000 per year and phases out once modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 for joint filers.

For a new client, look for consistency between tip income on the W 2 (and any Form 4137) and what’s claimed on Schedule 1 A. Where tips come through Forms 1099 NEC or 1099 K, make sure there’s actual tip support and not generic service income being treated as tips.

Qualified overtime is another area where the deduction can be overstated. The deductible amount is generally the premium portion above the regular rate of pay, usually the “half” in a time and a half calculation, not necessarily all overtime wages shown on a paystub. For 2025, employers weren’t required to report qualified overtime separately, so the Schedule 1 A instructions may be needed to determine the amount.

The overtime deduction is capped at $12,500 ($25,000 for joint filers) and phases out at the same MAGI thresholds as tips: $150,000, or $300,000 on a joint return. Additionally, the deduction is also reduced by $100 for every $1,000 of MAGI over the threshold. When you see a large overtime figure on Schedule 1 A, compare it to payroll records and verify that only the qualifying premium amount is being deducted.

Car loan interest has its own eligibility gate. The deduction is for interest on a post 2024 loan for a new, qualified passenger vehicle purchased for personal use. The vehicle must be subject to a lien, have final assembly in the United States and meet the other “qualified vehicle” requirements.

Lease payments don’t qualify, and neither do loans on used vehicles or primarily business use vehicles. The deduction is capped at $10,000 per year and begins to phase out when MAGI exceeds $100,000 ($200,000 for joint filers) and is reduced by $200 for every $1,000 of MAGI over the threshold. In a new client file, verify the lender statement, loan documents, VIN and purchase contract before you accept a sizable car interest deduction.

Don’t let the enhanced senior deduction run on autopilot

The enhanced deduction for seniors (the temporary senior deduction) can look straightforward but still go wrong in practice. For 2025 through 2028, qualifying individuals age 65 or older can claim an additional $6,000 deduction. A qualifying married couple may claim up to $12,000 if they file jointly.

The age test is strict: the taxpayer must be 65 or older on or before the last day of the tax year. The deduction phases out as MAGI rises above $75,000 ($150,000 for joint filers) and is reduced by 6% of MAGI over that threshold.

For new clients, this is an easy place to sanity check the prior year return. Confirm filing status, spouse eligibility, Social Security numbers and income relative to the phaseout range. A small deduction can become a big expectation problem if the client assumes they’ll get it every year.

OBBBA deduction review grid

Use this quick grid when reviewing a new-client return, extension file, IRS notice or possible amended return involving the 2025 OBBBA deductions. 

Whether you’re reviewing a new-client return, finishing an extension file, answering an IRS notice or weighing an amended return, this level of review doesn’t have to become a full audit of the prior preparer’s work. The goal is to clearly know what you can rely on and which next step each deduction requires: document and move on, ask more questions, amend if warranted or flag the issue before the next filing season. That's not extra caution. It's the diligence Circular 230 §10.22 already asks of every preparer, whether the return in front of you is the one you prepared or one you inherited.