New IRS Schedule 1-A confirms OBBBA deductions are below the line

The recent release of draft form Schedule 1-A (Form 1040), Additional Deductions, makes it clear: the new deductions under the One Big Beautiful Bill Act (OBBBA) are below-the-line entries, available to all taxpayers regardless of whether they itemize.

Headings include:

• No Tax on Tips
• No Tax on Overtime
• No Tax on Car Loan Interest
• Enhanced Deduction for Seniors

Reminder: Do not file draft forms.
The IRS draft forms, including Schedule 1-A (Form 1040), are for informational and planning purposes only. Final versions will be released once approved by the Office of Management and Budget (OMB), along with full instructions.

Here’s what we know so far, and what to look for this upcoming season.

What’s on the new Schedule 1-A?

The deductions introduced by OBBBA now have a home on the tax return. Schedule 1-A organizes each new deduction into its own section and funnels the total straight to the new (draft) Form 1040, U.S. Individual Income Tax Return, Line 13b. Here’s how the schedule is structured:

Part I – Modified Adjusted Gross Income (MAGI) Amount

Used to determine income thresholds for phaseouts used throughout the schedule.

Part II – No Tax on Tips

Deduction of up to $25,000 for qualified cash tips, available to employees in Treasury-approved occupations.

• Must be reported on IRS-approved forms, such as Form 4137, Social Security and Medicare Tax on Unreported Tip Income, or employer-furnished wage statements (e.g., Forms W-2, Wage and Tax Statement, Form 1099-NEC, Nonemployee Compensation, Form 1099-K, Payment Card and Third Party Network Transactions, or other applicable statements).
• Excludes service charges and electronic tips

Part III – No Tax on Overtime

Deduction of up to $12,500 (or $25,000 MFJ) for qualified overtime compensation.

• Applies to W-2 earners (not just independent contractors)
• Defined by the Fair Labor Standards Act
• Employers may use reasonable estimates for 2025 due to mid-year enactment

Part IV – No Tax on Car Loan Interest

Deduction for interest on personal-use car loans, limited to $10,000.

• Vehicle must be new, U.S.-assembled and taxpayer’s original use
• Loan must be secured by the vehicle
• IRS may require VIN reporting and lender statement

Part V – Enhanced Deduction for Seniors

Up to $6,000 for eligible seniors born before Jan. 2, 1961.

• Must have valid Social Security number
• Applies per taxpayer (i.e., both spouses may qualify if filing jointly)

Part VI – Total Additional Deductions

Adds up deductions from Parts II–V and transfers the total to the new (draft) Form 1040, U.S. Individual Income Tax Return, Line 13b, placing all of these firmly below the line.

Supporting cast: new drafts of Form 1040 and Schedule A

Form 1040, U.S. Individual Income Tax Return

The primary return includes a redesigned Line 13b to capture Schedule 1-A totals. Expect additional worksheets or instruction updates, especially for MAGI calculations and recordkeeping expectations.

Schedule A (Form 1040), Itemized Deductions

Still relevant, especially with OBBBA’s increase to the SALT cap:

• New cap is $40,000, adjusted for inflation through 2029
• Applies to state and local income, real estate or sales taxes
• Phases down for high-income taxpayers

This change may prompt some clients to itemize again, but with Schedule 1-A now in the picture, the strategy decisions just got more nuanced.

Here’s how to get ready before year-end

• Update client intake forms to ask about overtime, tip income and new auto loans
• Review payroll records for employer clients and ensure they’re tracking premium pay and tip types, ideally by occupation code or position title
• Adjust planning conversations to account for renewed itemizing opportunities
• Watch for final instructions and new substantiation rules as the IRS finalizes its guidance

Stay ahead of OBBBA changes with Tax Season Updates

The upcoming Tax Season Updates workshop is the perfect place to get in-depth insights on the latest OBBBA-created deductions. Don’t miss out on expert guidance to navigate the 2026 tax season confidently.