The Internal Revenue Service (IRS) periodically releases draft forms to provide taxpayers and practitioners with an early look at potential changes. One such draft, Schedule 1-A (Form 1040), titled "Additional Deductions," has been released for the 2025 tax year, presenting new below-the-line deductions that warrant careful examination.

It is critical to note that this is an early release draft and is explicitly marked "DRAFT—NOT FOR FILING". While significant changes are generally incorporated before final release, unexpected issues or new legislation may lead to further revisions. Professionals can submit comments to the IRS regarding draft forms at IRS.gov/FormsComments, including "NTF" followed by the form number in the message body for proper routing.

This article provides a technical overview of the sections found on the Draft Schedule 1-A (Form 1040) for 2025, detailing the information required for each part and elucidating the placement of these deductions on the new draft Form 1040, specifically highlighting their nature as deductions from Adjusted Gross Income (AGI).

Overview of Schedule 1-A (Form 1040) Sections

Schedule 1-A is designed to calculate several new additional deductions, ultimately consolidating them into a single entry on Form 1040. Many of these deductions include Modified Adjusted Gross Income (MAGI) phase-out provisions, making the initial calculation of MAGI a crucial step.

Part I: Modified Adjusted Gross Income (MAGI) Amount

This section serves as a foundational calculation, determining the taxpayer’s MAGI, which is subsequently used to apply income-based limitations for various deductions within Schedule 1-A.

Line 1: Taxpayers begin by entering the "Amount from Form 1040, 1040-SR, or 1040-NR, line 11b". Form 1040, line 11b represents the taxpayer’s Adjusted Gross Income (AGI) [11b].
Lines 2a-2d: These lines require the addition of specific excluded income items back into AGI to arrive at MAGI. These include:
- Line 2a: Any income from Puerto Rico that was excluded.
- Line 2b: The amount from Form 2555, line 45.
- Line 2c: The amount from Form 2555, line 50.
- Line 2d: The amount from Form 4563, line 15.
Line 2e: This line aggregates the total of the excluded income items from lines 2a through 2d.
Line 3: The final MAGI amount is calculated by adding the AGI from line 1 and the total excluded income from line 2e. This MAGI figure is critical for the phase-out calculations in subsequent parts of the schedule.

Part II: No Tax on Tips

This part calculates a deduction for qualified tips received, subject to specific conditions and income limitations.

Conditions: This deduction is available only if qualified tips were received, and both the taxpayer (and spouse, if filing jointly) must possess a valid social security number. For married individuals, filing a joint return is mandatory to claim this deduction.
Line 4a: Qualified tips received as an employee are entered here. If the amount in Form W-2, box 5, is $176,100 or less, this is typically the qualified tips included in Form W-2, box 7. Special instructions apply for amounts exceeding this threshold.
Line 4b: Qualified tips reported on Form 4137, line 1(c), are entered. If Form 4137 is not filed, -0- is entered.
Line 4c: If qualified tips were received from only one employer, the larger of line 4a or line 4b is entered. Otherwise, taxpayers must refer to specific instructions.
Line 5: This line addresses qualified tips received in the course of a trade or business, as reported on Form 1099-NEC, box 1; Form 1099-MISC, box 3; or Form 1099-K, box 1a. The entered amount cannot exceed the net profit from that trade or business. Specific instructions apply for qualified tips from multiple businesses.
Line 6: The total of all qualified tips, both employee and business, is calculated by adding lines 4c and 5.
Line 7: The initial "Qualified tips deduction" is the smaller of line 6 or $25,000.
Lines 8-13 (Phase-out): This deduction is subject to a phase-out based on MAGI (from Part I, line 3).
- Line 9: A threshold of $150,000 ($300,000 if married filing jointly) is established.
- Line 10: The amount by which MAGI exceeds the threshold is calculated. If zero or less, the full amount from line 7 is carried to line 13.
- Line 11: This excess is divided by $1,000, and the result is decreased to the next lower whole number (e.g., 1.5 becomes 1).
- Line 12: The result from line 11 is multiplied by $100, representing the reduction amount.
- Line 13: The final "Qualified tips deduction" is determined by subtracting line 12 from line 7. If the result is zero or less, -0- is entered.

Part III: No Tax on Overtime

This section computes a deduction for qualified overtime compensation, also subject to specific conditions and MAGI phase-out.

Conditions: This deduction is only applicable if qualified overtime compensation was received, and the taxpayer (and spouse, if filing jointly) must have a valid social security number. Married individuals must file jointly.
Line 14a: Qualified overtime compensation included on Form W-2, box 1, is entered.
Line 14b: Qualified overtime compensation reported on Form 1099-NEC, box 1, or Form 1099-MISC, box 3, is entered.
Line 14c: The sum of lines 14a and 14b constitutes the total qualified overtime compensation.
Line 15: The initial "Qualified overtime compensation deduction" is the smaller of line 14c or $12,500 ($25,000 if married filing jointly).
Lines 16-21 (Phase-out): Similar to the tip deduction, this deduction is subject to a MAGI phase-out.
- Line 17: A threshold of $150,000 ($300,000 if married filing jointly) applies.
- Line 18: The amount by which MAGI exceeds the threshold is calculated. If zero or less, the full amount from line 15 is carried to line 21.
- Line 19: This excess is divided by $1,000, and the result is decreased to the next lower whole number.
- Line 20: The result from line 19 is multiplied by $100, representing the reduction amount.
- Line 21: The final "Qualified overtime compensation deduction" is determined by subtracting line 20 from line 15. If the result is zero or less, -0- is entered.

Part IV: No Tax on Car Loan Interest

This part calculates a deduction for qualified passenger vehicle loan interest, with specific limitations and a MAGI-based phase-out.

Conditions: This deduction is available only if qualified passenger vehicle loan interest was paid or accrued. Taxpayers must consult instructions to define an "applicable passenger vehicle".
Line 22: This section requires Vehicle Identification Numbers (VINs) and the amount of interest for each applicable passenger vehicle. It also distinguishes if the interest was previously deducted on Schedule C, Schedule E, or Schedule F.
Line 23: The total qualified car loan interest for Schedule 1-A purposes (column (iii) from line 22) is summed here.
Line 24: The initial "Qualified car loan interest deduction" is the smaller of line 23 or $10,000.
Lines 25-30 (Phase-out): This deduction is also subject to a MAGI phase-out.
- Line 26: A threshold of $100,000 ($200,000 if married filing jointly) applies.
- Line 27: The amount by which MAGI exceeds the threshold is calculated. If zero or less, the full amount from line 24 is carried to line 30.
- Line 28: This excess is divided by $1,000, and the result is increased to the next higher whole number (e.g., 1.5 becomes 2). This is a key distinction from the tip and overtime deductions.
- Line 29: The result from line 28 is multiplied by $200, representing the reduction amount.
- Line 30: The final "Qualified car loan interest deduction" is determined by subtracting line 29 from line 24. If the result is zero or less, -0- is entered.

Part V: Enhanced Deduction for Seniors

This part introduces an additional deduction specifically for seniors, also subject to MAGI limitations.

Conditions: This deduction requires the taxpayer (and spouse, if filing jointly) to have a valid social security number. Married individuals must file jointly.
Lines 31-35 (Phase-out): This deduction has its own MAGI-based reduction.
- Line 32: A threshold of $75,000 ($150,000 if married filing jointly) applies.
- Line 33: The amount by which MAGI exceeds the threshold is calculated. If zero or less, $6,000 is directly entered on line 35.
- Line 34: The excess from line 33 is multiplied by 6% (0.06), which is the reduction amount.
- Line 35: The reduction from line 34 is subtracted from $6,000. If the result is zero or less, -0- is entered.
Lines 36a and 36b: These lines apply the calculated deduction to eligible individuals.
- Line 36a: The amount from line 35 is entered if the taxpayer has a valid social security number and was born before January 2, 1961.
- Line 36b: The amount from line 35 is entered if the taxpayer is married filing jointly, the spouse has a valid social security number, and the spouse was born before January 2, 1961.
Line 37: The final "Enhanced deduction for seniors" is the sum of lines 36a and 36b.

Part VI: Total Additional Deductions

This section aggregates all deductions calculated in the preceding parts.

Line 38: The "Total Additional Deductions" is the sum of the qualified tips deduction (line 13), the qualified overtime compensation deduction (line 21), the qualified car loan interest deduction (line 30), and the enhanced deduction for seniors (line 37). This total is then transferred to the appropriate line on the main tax form.

Placement on Form 1040 and Implications for Adjusted Gross Income

The total deductions calculated on Schedule 1-A (Form 1040) are reported on Form 1040, line 13b. This placement is highly significant for tax professionals as it explicitly clarifies that these "Additional Deductions" are not used in the computation of Adjusted Gross Income (AGI).

On Form 1040, line 11b represents the taxpayer’s Adjusted Gross Income (AGI) [11b]. Following this, the form proceeds to calculate taxable income by subtracting various deductions from AGI. Specifically:

Line 12e reports the Standard deduction or itemized deductions (from Schedule A).
Line 13a reports the Qualified business income deduction (from Form 8995 or Form 8995-A).
Line 13b explicitly states "Additional deductions from Schedule 1-A, line 38".
Line 14 sums lines 12e, 13a, and 13b.
Line 15 then subtracts this total (line 14) from AGI (line 11b) to arrive at taxable income.

This sequential structure on Form 1040 demonstrates that the deductions from Schedule 1-A are below-the-line deductions. Unlike "Adjustments to income" found on Schedule 1, which are reported on Form 1040, line 10, and are subtracted from gross income to arrive at AGI, the Schedule 1-A deductions are subtracted after AGI has been computed. This distinction is crucial for various tax calculations that rely on AGI, such as limitations on other deductions, credits, or income thresholds. The inclusion of Schedule 1-A deductions alongside standard/itemized deductions and the QBI deduction confirms their role in reducing taxable income, not AGI.

Conclusion

The Draft Schedule 1-A (Form 1040) for 2025 introduces several new "Additional Deductions" related to qualified tips, overtime compensation, car loan interest, and an enhanced deduction for seniors. Each of these deductions is subject to specific conditions and MAGI-based phase-out rules, requiring careful calculation. Tax professionals should pay close attention to the draft status of this form and monitor for any subsequent revisions. The placement of these deductions on Form 1040, specifically at line 13b, definitively classifies them as below-the-line deductions, impacting taxable income but not the computation of Adjusted Gross Income. Understanding these mechanics will be essential for accurate tax preparation and advising clients in the upcoming tax season.

Prepared with assistance from NotebookLM.