What’s new for Schedule 1-A: the 2025 draft form

The draft Schedule 1-A (Form 1040), Additional Deductions, consolidates several new deductions into one schedule. According to the technical review published in Current Federal Tax Developments, this early release offers a preview of how the IRS intends to handle below-the-line deductions for the period 2025-2028. It outlines the items that reduce taxable income rather than affect AGI. This blog examines the form’s structure, highlights key changes compared to 2024 and provides guidance on how to prepare your workflow accordingly.

What is Schedule 1-A?

In contrast to the 2024 Schedule 1, which combined “Additional Income” and “Adjustments to Income,” the draft Schedule 1-A is titled “Additional Deductions.” It is designed to be attached to Form 1040, 1040-SR, or 1040-NR and addresses specific new deductions introduced by recent legislation. Notably, the technical review emphasizes that these deductions are below-the-line, meaning they reduce taxable income after AGI, but do not reduce AGI itself. That distinction matters for credits and other phaseout thresholds tied to AGI.

Key structure and technical details

Part I: Modified Adjusted Gross Income (MAGI)

The draft form begins with the taxpayer’s AGI (Form 1040, Line 11b). It then requires certain add-backs for excluded income (for example, Puerto Rico income or foreign-earned income) to calculate MAGI, which is used throughout the form to apply phaseout rules. According to the technical review, this front-loaded calculation of MAGI highlights the importance of accurate income reporting and phaseout modeling.

Part II: No Tax on Tips

This section allows a deduction for qualified tips with a cap of $25,000. The phaseout begins at $150,000 MAGI (single) or $300,000 (married filing jointly). According to the draft, tips must be earned in occupations listed on the IRS’s tipped-occupation list and must be reported appropriately. The form references Form W-2, Wage and Tax Statement, Box 7, and Form 4137, Social Security and Medicare Tax on Unreported Tip Income, Line 1, Row A, Column (c) as part of the calculation. This deduction is new and shifts how tipped workers must track income and withholding.

Part III: No Tax on Overtime

For the first time, taxpayers may claim a deduction for qualified overtime compensation with a cap of $12,500 (single) or $25,000 (married filing jointly). The same MAGI limits as the tips deduction apply. The draft clarifies that if overtime is not included in Form W-2, Box 1, or is reported on a Form 1099-NEC, Nonemployee Compensation, or Form 1099-MISC, Miscellaneous Information, special rules apply.

Part IV: Qualified Passenger Vehicle Loan Interest (QPVLI)

Formerly “car loan interest,” this deduction is now distinctly named QPVLI. The cap is $10,000, and the phaseout begins at $100,000 MAGI (single) or $200,000 (married filing jointly). Column (iii) in the form must show QPVLI paid in 2025, less than any amounts already deducted on Schedules C, E or F. The form clarifies that expense amounts already deducted cannot be used again, a key point flagged in the technical review.

Part V: Enhanced Deduction for Seniors

Taxpayers age 65 or older may claim a base $6,000 deduction. On a joint return where both spouses are 65 or older, the amount is $12,000. The deduction phases out at $75,000 MAGI (single) or $150,000 (married filing jointly), using a 6% reduction of the excess. The technical review notes this deduction builds on the age/blind extra standard deduction and is separate in nature.

Part VI: Total

The sum of Parts II through V is carried to the appropriate line on Form 1040 (Line 13b for Form 1040 or 1040-SR; Line 13c for Form 1040-NR). Note, however, the final 2025 versions of Forms 1040 and 1040 NR have not been released yet, so those line numbers could change. Because these deductions reduce taxable income, not AGI, planning around AGI-tied credits remains critical.

Comparison chart: 2024 vs. 2025 draft

What tax professionals should do now

• Update client interview sheets and checklists. You will need to ask about tipped occupations, overtime pay (especially non-standard pay codes), vehicle loan interest used in taxable income and age-based deduction eligibility. Since the draft requires occupation verification for tips and special rules for overtime and QPVLI, early documentation becomes essential.
• Revise software templates and data capture. Ensure your workflow captures Form W-2, Box 7, amounts; Form 4137 entries; Form 1099-NEC/MISC overtime data; QPVLI paid and previously claimed deductions on Schedules C/E/F; and MAGI components. The front-loaded MAGI calculation means software flags for phase-outs should be in place.
• Advise clients on timing and eligibility. For clients who expect to claim these deductions, timing matters. For example, tipped employees must ensure their tips are properly reported; overtime workers must distinguish premium pay from regular pay; borrowers must track QPVLI separately; seniors should verify that their MAGI stays below phase-out thresholds where possible.
• Explain impacts on credits and AGI-based thresholds. Because the new deductions reduce taxable income only (not AGI), client planning must anticipate how their AGI-based credits and limits behave. For example, pushing AGI higher may phase out other benefits even though taxable income drops.
• Monitor for final form changes. The technical review emphasizes that Schedule 1-A is still a draft and subject to revision. Submit client comments via IRS comment channels where appropriate and stay alert for final instructions and form publication.

For practitioners, the takeaway is clear: start incorporating these potential deductions into your workflows now. The earlier you start preparing for these deductions and their requirements, the smoother your 2026 filing season will be.