Schedule 1-A explains how clients claim “no tax” deductions

The Internal Revenue Service (IRS) released new guidance in IR-2026-28 on March 2, 2026, outlining instructions on how taxpayers will claim several high-profile deductions enacted under the One, Big, Beautiful Bill (OBBBA). For tax year 2025, those benefits will be reported on the new Schedule 1-A (Form 1040), Additional Deductions. 

The new schedule consolidates the four provisions often described as “no tax on tips,” “no tax on overtime,” “no tax on car loans” and “no tax on seniors.” While the slogans are simple, the mechanics require careful attention. Tax professionals will play a central role in ensuring clients calculate and document these deductions correctly.

The new Form 1040 instructions now include expanded guidance, examples and definitions for the four deduction categories (no tax on tips, no tax on overtime, car loan interest and the enhanced senior deduction). This is a key difference from the earlier draft version, which did not carry final instructions.

A new framework for additional deductions

Schedule 1-A attaches to Form 1040, 1040-SR or 1040-NR. Part I computes modified adjusted gross income (MAGI), which drives phaseouts across all four benefits. Each deduction has its own dollar cap and income threshold, so reviewing MAGI early in preparation is critical.

The total from Schedule 1-A flows to Form 1040, Line 13b. Importantly, taxpayers may claim these deductions whether they use the standard deduction or itemize. That design alone will affect planning conversations this filing season.

No tax on tips

Part II addresses qualified tips. The deduction is limited to $25,000 and begins phasing out when MAGI exceeds $150,000, or $300,000 for married taxpayers filing jointly. The schedule distinguishes between tips received as an employee and tips received in a trade or business. Line 4 pulls from Form W-2 and, when applicable, Form 4137. Line 5 captures qualified tips reported on Forms 1099-NEC, 1099-MISC or 1099-K, limited to net profit from the trade or business activity. 

The new instructions also provide examples of different scenarios for tipped workers, along with worksheets to help tipped workers calculate their tipped income.

Clients must have a valid Social Security number, and married taxpayers must file jointly to claim the deduction.  The instructions also reference a list of occupations that customarily and regularly receive tips, adding another compliance checkpoint.

For practitioners, documentation and reporting discipline matter. Tips must be reported to qualify for the deduction. Underreporting wages to reduce payroll taxes could now cost clients a valuable income tax benefit. 

No tax on overtime

Part III provides a deduction for qualified overtime compensation. The cap is $12,500, or $25,000 for married taxpayers filing jointly. Phaseouts begin at MAGI of $150,000, or $300,000 for joint filers. Qualified overtime generally means compensation required under Section 7 of the Fair Labor Standards Act of 1938 that exceeds the regular rate of pay. The schedule pulls from Form W-2 and, in certain cases, Forms 1099-NEC or 1099-MISC. 

Again, a valid Social Security number is required, and married taxpayers must file jointly. The worksheet structure mirrors the tips deduction, reinforcing the need to compute MAGI accurately before estimating benefit amounts. The IRS instructions provide illustrative examples and worksheets.

No tax on car loan interest

Again, a valid Social Security number is required, and married taxpayers must file jointly. The worksheet structure mirrors the tips deduction, reinforcing the need to compute MAGI accurately before estimating benefit amounts. Taxpayers may deduct up to $10,000, subject to a phaseout beginning at $100,000 MAGI, or $200,000 for married taxpayers filing jointly. 

The schedule requires listing the vehicle identification number (VIN) and separating interest already deducted on Schedule C, E or F. Only personal-use interest qualifies. Definitions in the instructions clarify the terms “qualified passenger vehicle loan interest,” “applicable passenger vehicle,” “final assembly in the United States” and “personal use”.

This is not a revival of the old personal interest deduction. It is a targeted benefit with specific eligibility criteria. The Form 1040 instructions now include an example. Practitioners should confirm loan documentation and ensure interest is not double counted. 

Enhanced deductions for seniors

Part V provides an enhanced deduction for seniors. Taxpayers born before Jan. 2, 1961, with a valid Social Security number may qualify; married taxpayers must file jointly.

The maximum is $6,000 per eligible individual, or $12,000 if both spouses qualify. Phaseouts begin at $75,000 MAGI, or $150,000 for joint filers. For clients near the threshold, year-end income planning could influence eligibility. Coordination with retirement distributions, Roth conversions and capital gains recognition will be important.

What this means for tax professionals

Schedule 1-A centralizes four new deductions but layers in income limits, documentation rules and filing status requirements. Married taxpayers must file jointly for each of these benefits. Valid Social Security numbers are mandatory. 

Most software will calculate the math. Advising clients on eligibility, substantiation and filing strategy is where practitioners add value. Tax professionals must know the rules so they can confirm the software is applying them correctly.

The IRS continues to encourage electronic filing and direct deposit for faster, more secure refunds. As these new instructions roll out, early education and clear communication will help clients maximize benefits while staying compliant.