Schedule 1-A: claiming the tips, overtime, car-loan and senior deductions

A married couple filing jointly for the 2025 tax year, with $203,400 of wages, a server's $22,000 of reported tips, a machinist's $21,000 of overtime pay, $3,400 of interest on a new pickup and one spouse aged 66, claims $34,396 on Schedule 1-A. That total goes to Form 1040 line 13b and cuts their 2025 federal income tax by $7,567.

This piece walks the 2025 form one part at a time: what each line asks for, which document the number comes off, and how each cap and phase-down rounds. The 2025 form is the only final one, and it is the one the Form 1040 calculator computes; the 2026 draft, which renumbers almost every line, comes at the end. For why the schedule sits below adjusted gross income, read the overview. Eligibility has its own pieces: tips and overtime, the 2026 W-2 codes, car-loan interest and the senior deduction.

The household

Both spouses work, and both were on payroll all year.

• Spouse A, born in 1959, is an hourly machinist. Form W-2 box 1 shows $121,400, which includes $21,000 the payroll system paid for hours past 40 at time and a half.
• Spouse B, born in 1972, waits tables at one restaurant. Box 1 shows $82,000, and box 7 (Social Security tips) shows $22,000 of it. Wait staff are occupation 102 on the Treasury list.
• In February 2025 they financed a new, US-assembled pickup. The lender's online account shows $3,400 of interest paid in 2025.

With no other income and no adjustments, Form 1040 line 11b reads $203,400.

Part I: one figure, usually AGI

Line 1 copies Form 1040 line 11b. Lines 2a through 2d add back income excluded from Puerto Rico and the amounts from Form 2555 (lines 45 and 50) and Form 4563 (line 15). The instructions say a filer with none of those enters AGI straight on line 3, so the couple's line 3 is $203,400. Every later part reads line 3 again (on lines 8, 16, 25 and 31) as its modified AGI.

Part II: tips, lines 4 through 13

Line 4a takes qualified tips "included on Form W-2, box 7." The 2025 W-2 has no separate tip-deduction box, so the instructions accept any of four figures: box 7 itself, the total of the monthly Forms 4070 the worker gave the employer, an amount the employer chose to report in box 14 or on a separate statement, or the Form 4137 figure for tips never reported to the employer. The form's own caution sends anyone whose box 5 exceeds $176,100, the 2025 Social Security wage base, to the instructions. Notice 2025-69 explains why: once boxes 3 and 7 together reach $176,100, "the amount in box 7 may not include all the employee's cash tips," and the Forms 4070 are the better record.

Line 4b takes Form 4137, line 1, row A, column (c), and line 4c takes the larger of 4a and 4b. A worker with tips from two or more employers enters zero on 4a and 4b and fills the Qualified Tips From More Than One Employer worksheet, which takes the larger figure employer by employer and sums them on 4c. Line 5 is for tips earned in a business: the tip share of a 1099-NEC box 1, 1099-MISC box 3 or 1099-K box 1a, capped at that business's net profit after its share of the self-employment tax deduction, retirement contributions and self-employed health insurance.

Line 7 caps lines 4c and 5 together at $25,000, and on a joint return that is one $25,000 for the couple: the instructions call it "not a per spouse limit." Lines 8 through 13 then phase it down by $100 for each $1,000 of MAGI above $150,000 ($300,000 joint), and line 11 rounds the thousands down. A joint return at $301,999 is $1,999 over, line 11 reads 1, and the deduction loses $100.

Spouse B's entries: 4a $22,000, 4c $22,000, line 7 $22,000. Line 10 is $203,400 minus $300,000, a negative number, so the form says to skip to line 13. Line 13: $22,000.

The person who received the tips needs a valid Social Security number, which the instructions define as one valid for employment and issued by the Social Security Administration before the return's due date, extensions included. A card printed "Valid for Work Only with DHS Authorization" counts only while that authorization lasts.

Part III: overtime, lines 14 through 21

Line 14a wants the qualified overtime "included in Form W-2, box 1," and qualified means only the FLSA-required premium: the half of time and a half. The 2025 W-2 does not show it either, so the instructions allow any of five methods:

1. A statement from the employer that shows the premium itself (an employer may use box 14 for it).
2. A statement that shows total pay for the overtime hours: divide it by three.
3. A premium larger than time and a half, shown alone: scale it back by the fraction that leaves the half.
4. A larger premium shown as total pay for the hours: scale that total the same way. At double time, $20,000 of overtime pay yields $5,000.
5. No figures from the employer: a reasonable method built from the regular rate and the hours over 40.

Spouse A's pay records show $21,000 paid for overtime hours at time and a half, so method 2 gives $21,000 ÷ 3 = $7,000 on line 14a. Three things never go in: pay above time and a half under a union contract or state law, holiday and weekend premiums in a week without 40 hours, and overtime paid to a worker the FLSA does not cover. One thing goes in that the line's wording seems to exclude: overtime deferred into a retirement plan, which is missing from box 1 but is still entered on 14a. Line 14b takes the overtime share of a 1099-NEC box 1 or 1099-MISC box 3.

Line 15 caps the total at $12,500, or $25,000 on a joint return, again per couple rather than per spouse. Lines 16 through 21 repeat Part II's phase-down: $100 per $1,000 over $150,000 ($300,000 joint), rounded down on line 19. The couple's line 18 is negative, so line 21 is $7,000.

Part IV: car-loan interest, lines 22 through 30

Line 22 has two rows, one per vehicle, and three columns. Column (i) is the vehicle identification number; the instructions make the VIN a condition of the deduction and require an attached statement for a third vehicle. Column (ii) is any interest on that loan already deducted on Schedule C, E or F. Column (iii) is the year's interest minus column (ii).

For 2025 the interest comes from the lender rather than from a tax form. Notice 2025-57 let lenders meet their first year of reporting by making the 2025 interest total available by January 31, 2026, through an online account portal, a regular monthly statement or an annual statement. The couple's portal shows $3,400, so 22a column (iii) and line 23 are $3,400, and line 24 caps it at $10,000.

Lines 25 through 30 phase the deduction down by $200 for each $1,000 over $100,000 ($200,000 joint), and here line 28 rounds up: "increase 0.05 to 1," the form says. The couple's line 27 is $3,400, line 28 is 4, line 29 is $800, and line 30 is $2,600. Part IV is also the one part with no joint-filing caution, so a married buyer filing separately can still claim it.

Part V: seniors, lines 31 through 37

Line 32 holds $75,000, or $150,000 on a joint return. Line 33 subtracts it from line 3, line 34 multiplies by 6% and line 35 subtracts the product from $6,000. Nothing on these lines rounds. For the couple: $203,400 − $150,000 = $53,400; 6% of that is $3,204; $6,000 − $3,204 = $2,796.

Line 35 is a per-person figure. Line 36a repeats it for a filer "born before January 2, 1961" with a valid SSN, and 36b repeats it for a spouse who meets the same tests. Spouse A qualifies and Spouse B, born in 1972, does not, so line 37 is $2,796. The instructions treat a person as reaching 65 on the day before the 65th birthday, which matters in one case they spell out: a taxpayer born before the cutoff who died in 2025 before reaching 65 does not qualify.

Part VI and the return

On Form 1040, line 12e is the $33,100 standard deduction for a joint return with one spouse 65 or older, per the 2025 chart. Line 14 adds $33,100 and $34,396 to get $67,496, and line 15 leaves $135,904 of taxable income. The Tax Computation Worksheet, Section B, taxes joint income between $100,000 and $206,700 at 22% less $10,172: $135,904 × 22% = $29,898.88, minus $10,172.00, is $19,727 on line 16. Without Schedule 1-A, taxable income would be $170,300 and the tax $27,294. The difference is $34,396 × 22%, or $7,567.

Two comparisons put that in proportion. The schedule's total is larger than the couple's own standard deduction, $34,396 against $33,100. And none of its four lines existed on their 2024 return. Enter the same two W-2s, the interest and the birth years at /form-1040 and line 13b reads $34,396.

The 2026 schedule renumbers almost every line

The IRS's early release draft of the 2026 Schedule 1-A, created June 16, 2026 and marked "not for filing," keeps the arithmetic and moves nearly everything else. It runs to three pages and 44 lines. Part II becomes a table of up to five employers by EIN, each reading W-2 box 12 code "TP" against Form 4137, with the employee tip total on line 5, the $25,000 cap on line 9 and the deduction on line 15. Business tips get their own rows that read 1099-NEC box 1(b), 1099-MISC box 13(a) or 1099-K box 1(c). Overtime is listed employer by employer from W-2 box 12 code "TT" (lines 16a–16e) and from 1099-NEC box 1d or 1099-MISC box 14 (18a–18e), with the deduction on line 27. Each vehicle row gains two yes-or-no questions, whether original use began with you and whether final assembly happened in the United States, and the caution points to Form 1098-VLI box 1. The senior lines move to 37 through 43, with the birthdate test advanced to before January 2, 1962. The draft's line 44 sends the total to Form 1040 "line 13a."

The lender's number gets a form of its own for 2026. Form 1098-VLI reports the year's interest in box 1, the VIN in box 2d, and the same two vehicle facts as checkboxes in boxes 6 and 7. Its instructions require one form per loan, and only for a loan that paid the lender $600 or more in interest during the year. A loan below that threshold may arrive with no 1098-VLI at all, and its interest still belongs on Schedule 1-A, from the lender's statement.

One rounding decides the couple's line 30. Had their MAGI been $203,000 even, line 28 would read 3 instead of 4 and the car-loan deduction would be $2,800. The extra $400 of wages that took them to $203,400 cost $200 of deduction on the way.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.