The Internal Revenue Service has released a historic new 2026 filing season tax form that will allow taxpayers to claim significant deductions on their 2025 tax returns. Schedule 1-A, “Additional Deductions,” is the first widespread expansion of federal tax deductions in years and provides relief to working Americans through specific deductions for tips earned, overtime compensation, interest on car loans, and greater benefits to seniors.
History of Schedule 1-A implementation
Schedule 1-A is a result of the One Big Beautiful Bill Act (OBBBA) Congress passed in July 2025, creating four temporary tax deductions available between 2025 and 2028. The Internal Revenue Service released the draft in September 2025, with the final version being out for use during the 2026 tax filing season when taxpayers submit their 2025 tax returns.
This two-page form consolidates all four new deductions into a single streamlined form submitted with Form 1040, 1040-SR, or 1040-NR. Tax professionals indicate that this approach lends operational efficiency to the IRS while simplifying the filing process for taxpayers seeking these temporary relief benefits.
The deductions are “below-the-line” deductions since they reduce taxable income after the calculation of Adjusted Gross Income (AGI), similar to standard or itemized deductions. Importantly, the deductions are available to all qualified taxpayers regardless of whether they use itemized deductions or take the standard deduction.
Tips deduction eligibility and requirements
The tips deduction allows qualified taxpayers to deduct qualified tips received in regular tipped occupations, to a maximum of $25,000 for single filers or $50,000 for joint filers. The deduction vanishes for taxpayers with Modified Adjusted Gross Income (MAGI) over $150,000 for single filers or $300,000 for joint filers.
Eligible tips include cash tips, credit card tips, checks, casino chips, and dollar-tied stablecoins but exclude volatile cryptocurrencies such as Bitcoin. The compilation of jobs that “customarily and regularly” received tips as of December 31, 2024, is to be released by the IRS on or before October 2, 2025.
For 2025, transitional relief gives employees the option to use Form W-2, Box 7 tips for social security tips as their qualified tips computation basis. Tip-receiving non-employees must report tips on Form 1099-NEC, 1099-MISC, or 1099-K, though the IRS will not change these forms until 2026.
Overtime pay deduction structure
The overtime deduction permits tax filers to deduct qualifying overtime earnings up to $12,500 annually for single filers or $25,000 for joint filers. The deductible amount applies to the premium aspect of overtime pay—that “half” of “time-and-a-half” pay—that exceeds regular hourly earnings.
This decrease only applies to overtime pay required by the federal Fair Labor Standards Act (FLSA) and properly recorded on Form W-2, Form 1099, or other authorized tax forms. State-required overtime not qualifying for federal FLSA requirements may not be deducted.
The phase-out begins at $150,000 MAGI for single filers or $300,000 joint filers and reduces the deduction by $100 for each $1,000 in income over these figures. For example, a single filer with $250,000 MAGI would have his maximum deduction reduced to $2,500 rather than the full $12,500.
Car loan interest deduction parameters
The auto loan interest deduction allows up to $10,000 of interest paid annually on qualified car loans, with the phase-out beginning at $100,000 MAGI for single filers or $200,000 for joint filers. This deduction applies only to loans procured after December 31, 2024, for purchasing new automobiles that were last assembled in the United States.
Qualifying vehicles are cars, minivans, sport utility vehicles, pickup trucks, and motorcycles with gross vehicle weight ratings of less than 14,000 pounds and purchased for private, not business, use. Used vehicles and foreign vehicles that were not made in the United States are not qualified.
Taxpayers must provide the Vehicle Identification Number (VIN) on the tax return to be able to deduct this, and the loan must be secured by a lien in the vehicle. Payments on rent are not deductible under this amount—only normal purchase loans fit the bill.
Enhanced senior deduction benefits
The expanded senior deduction provides tax relief to taxpayers born on or before January 2, 1961 (age 65 or older in 2025) with an additional tax deduction of $6,000, or $12,000 for married filing couples both of whom meet the requirements. This is a huge amount of tax relief for older Americans on top of present senior tax benefits.
The deduction phases out starting at $75,000 MAGI for individuals or $150,000 for joint filers and reduces by 6% of income above these amounts. In contrast to the other three deductions, this age-related benefit continues beyond 2028 and becomes a permanent feature of the tax code.
Filing requirements and documentation
All four deductions require taxpayers to possess valid Social Security numbers, and spouses have to file together to qualify for the tips, overtime, and senior deductions. The automobile loan interest deduction is the only OBBBA provision for married filers filing separately.
Schedule 1-A begins by calculating Modified Adjusted Gross Income on line 3, which is the beginning point to calculate phase-out limits for all four deductions. Taxpayers complete different sections for each deduction that applies to them before summing up the amounts and transferring the total to line 13b of Form 1040.
The IRS will provide transitional relief in 2025, recognizing that employers and payors are not necessarily going to alter their reporting system immediately to account for the very detailed information necessary for these new deductions. Taxpayers may need to refer to their own detailed records for substantiation, particularly for overtime and tips in that first year of impact.
