New Schedule 1-A for tips, OT, car loans, and senior deductions published

The IRS published Schedule 1-A (Form 1040), Additional Deductions, along with updated instructions for Form 1040, U.S. Individual Income Tax Return, that explain how taxpayers can claim the new deductions for tips, overtime, and car loan interest, and the enhanced deduction for seniors.

Schedule 1-A does not differ from the draft version issued last year for calculating the four deductions enacted by H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, on a single form. The instructions do provide details on how all four apply, however.

Examples from Form 1040 instructions:

Tips

If your employer is in a specified service trade or business (SSTB), tips received as an employee of that employer are not qualified tips. If you are self-employed in an SSTB, tips received in the course of that trade or business are not qualified tips. If you received tips in the course of another trade or business that is not an SSTB, those tips may be qualified tips if they meet the other requirements. For more information on SSTBs, see the instructions for Form 8995-A, Qualified Business Income Deduction.

Until the IRS issues final regulations to determine SSTB status, the IRS will treat employees and self-employed individuals as having received tips in the course of a trade or business that is not an SSTB if the employee is in an occupation that customarily and regularly received tips on or before Dec. 31, 2024.

For more information on the transition relief, see Notice 2025-69.

Overtime

If a taxpayer requests the amount of their Fair Labor Standards Act (FLSA) overtime premium from their employer or the service recipient, they can rely on that information to determine the amount of their qualified overtime compensation. If the qualified overtime compensation isn’t separately identified on their Form W-2, Wage and Tax Statement, Form 1099-NEC, Nonemployee Compensation, or Form 1099-MISC, Miscellaneous Information, a taxpayer can determine their qualified overtime compensation using one of the methods described in the Form 1040 information.

If your employer is covered by a different overtime rule in Section 7 of the FLSA, rather than the general rule in Section 7(a), the taxpayer must compute their overtime compensation using the rule that applies to them and may use any of the methods described in the Form 1040 information, as long as the result is reasonable.

This may apply to public sector employees in fire protection or law enforcement, or an employee of a political subdivision of a state or an interstate governmental agency who receives compensatory time off instead of cash overtime. The Form 1040 information provides examples of how this might apply.

Car loan interest

The IRS details what counts as an applicable passenger vehicle (APV) as those that meet the following conditions:

• The original use of the vehicle starts with the taxpayer (a used vehicle does not qualify);
• The vehicle is a motor vehicle manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails);
• The vehicle has at least two wheels;
• The vehicle is a car, minivan, van, SUV, pickup truck, or motorcycle and has a gross vehicle weight rating of less than 14,000 pounds; and
• The vehicle has undergone final assembly in the United States.

The instructions to Form 1040 describe how to determine whether a vehicle underwent final assembly in the United States.

Senior deduction

If a taxpayer was born before Jan. 2, 1961, but died in 2025 before reaching age 65, then the taxpayer does not qualify for the enhanced deduction for seniors. A person is considered to reach age 65 on the day before their 65th birthday.

The IRS provides this example: Your spouse was born on Feb. 14, 1960, and died on Feb. 13, 2025. Your spouse is considered age 65 at the time of death and would qualify for the enhanced deduction for seniors. However, if your spouse died on Feb. 12, 2025, your spouse is not considered age 65 and would not qualify for the enhanced deduction for seniors.

Computation

Taxpayers calculate the amount of the deductions that apply to them, add the amounts together, and include the total on line 13b of their Form 1040 or Form 1040-SR, U.S. Income Tax Return for Seniors, or on line 13c of Form 1040-NR, U.S. Nonresident Alien Income Tax Return.

The form also includes a section for calculating the taxpayer’s modified adjusted gross income, which is used in calculating phaseouts for the four deductions.

All four deductions expire after 2028.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.