The IRS has released draft Schedule 1-A, introducing four new temporary deductions within the One Big Beautiful Bill Act. If you are wondering what the new form looks like and how the calculations work, read on as we explore each below.
Modified Adjusted Gross Income (MAGI)
It is important to note that all four deductions require calculating your MAGI first, which determines eligibility and phaseout amounts for each deduction.
The Four New Deductions and How the Calculations Work
These deductions are all referred to on the schedule by their colloquial names, for example: “No Tax on Tips,” “No Tax on Overtime” and “No Tax on Car Loan Interest.” The sole exception, however, is popularly referred to as the “No Tax on Social Security” provision, which is called the “Enhanced Deduction for Seniors” on the form.
1. Tips Deduction
Maximum: $25,000 annually
Eligibility: Must receive qualified tips in customarily tipped occupations
Phaseout: Begins at $150,000 MAGI ($300,000 joint filers)
Rate: $100 reduction per $1,000 over threshold
Requirements: Valid Social Security number; married couples must file jointly
2. Overtime Deduction
Maximum: $12,500 single ($25,000 joint filers)
Eligibility: Only the premium portion of overtime pay (the “half” of time-and-a-half)
Phaseout: Same as tips deduction – begins at $150,000 MAGI
Rate: $100 reduction per $1,000 over threshold
3. Car Interest Deduction
Maximum: $10,000 annually
Eligibility: Interest on loans for new vehicles under 14,000 pounds and assembled in the United States
Phaseout: Begins at $100,000 MAGI ($200,000 joint filers)
Rate: $200 reduction per $1,000 over threshold
Requirements: Must provide VIN; loan must originate after Dec. 31, 2024
4. Enhanced Deduction for Seniors
Amount: $6,000 fixed deduction
Eligibility: All taxpayers (replaces “No Tax on Social Security” promise)
Phaseout: Begins at $75,000 MAGI ($150,000 joint filers)
Rate: 6 percent reduction of excess income over threshold
Key Points to Remember
All deductions are available whether you itemize or take the standard deduction
All require valid Social Security numbers
Married couples must file jointly to claim these benefits
Income limits mean higher earners receive reduced or no benefits
These are deductions, not exclusions – income is still reportable for state/local taxes
Final Steps
After you have calculated everything applicable for the four possible deductions, you will enter the total on the new line 13b on Form 1040. The total amount of the deductions entered here is removed from your income prior to calculating your tax. Remember, these are deductions and not credits, so they only reduce your taxable income and are not a direct reduction in your tax due.
You can see an example of the new draft Form 1040 illustrating this below.
Screenshot of new Form 1040
Conclusion and Draft from Status – and IRS Warning
The above provides guidance to taxpayers and professionals on how both the deductions calculations work and flow through Form 1040. The IRS warns, however, that the forms and instructions currently released are in draft form at this point. Before any forms or instructions can be released in their final state, they need to be approved by the OMB. It is not unusual for draft releases of instructions and publications to have some changes before their final release, even if only minor.
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Initial Look at the New Tax Form Schedule 1-A: Four Key Deductions for 2025
October 1, 2025 · Blog, Tax and Financial News, Uncategorized
⏱ 4 min read
The IRS has released draft Schedule 1-A, introducing four new temporary deductions within the One Big Beautiful Bill Act. If you are wondering what the new form looks like and how the calculations work, read on as we explore each below.
Modified Adjusted Gross Income (MAGI)
It is important to note that all four deductions require calculating your MAGI first, which determines eligibility and phaseout amounts for each deduction.
The Four New Deductions and How the Calculations Work
These deductions are all referred to on the schedule by their colloquial names, for example: “No Tax on Tips,” “No Tax on Overtime” and “No Tax on Car Loan Interest.” The sole exception, however, is popularly referred to as the “No Tax on Social Security” provision, which is called the “Enhanced Deduction for Seniors” on the form.
1. Tips Deduction
Maximum: $25,000 annually
Eligibility: Must receive qualified tips in customarily tipped occupations
Phaseout: Begins at $150,000 MAGI ($300,000 joint filers)
Rate: $100 reduction per $1,000 over threshold
Requirements: Valid Social Security number; married couples must file jointly
2. Overtime Deduction
Maximum: $12,500 single ($25,000 joint filers)
Eligibility: Only the premium portion of overtime pay (the “half” of time-and-a-half)
Phaseout: Same as tips deduction – begins at $150,000 MAGI
Rate: $100 reduction per $1,000 over threshold
3. Car Interest Deduction
Maximum: $10,000 annually
Eligibility: Interest on loans for new vehicles under 14,000 pounds and assembled in the United States
Phaseout: Begins at $100,000 MAGI ($200,000 joint filers)
Rate: $200 reduction per $1,000 over threshold
Requirements: Must provide VIN; loan must originate after Dec. 31, 2024
4. Enhanced Deduction for Seniors
Amount: $6,000 fixed deduction
Eligibility: All taxpayers (replaces “No Tax on Social Security” promise)
Phaseout: Begins at $75,000 MAGI ($150,000 joint filers)
Rate: 6 percent reduction of excess income over threshold
Key Points to Remember
All deductions are available whether you itemize or take the standard deduction
All require valid Social Security numbers
Married couples must file jointly to claim these benefits
Income limits mean higher earners receive reduced or no benefits
These are deductions, not exclusions – income is still reportable for state/local taxes
Final Steps
After you have calculated everything applicable for the four possible deductions, you will enter the total on the new line 13b on Form 1040. The total amount of the deductions entered here is removed from your income prior to calculating your tax. Remember, these are deductions and not credits, so they only reduce your taxable income and are not a direct reduction in your tax due.
You can see an example of the new draft Form 1040 illustrating this below.
Screenshot of new Form 1040
Conclusion and Draft from Status – and IRS Warning
The above provides guidance to taxpayers and professionals on how both the deductions calculations work and flow through Form 1040. The IRS warns, however, that the forms and instructions currently released are in draft form at this point. Before any forms or instructions can be released in their final state, they need to be approved by the OMB. It is not unusual for draft releases of instructions and publications to have some changes before their final release, even if only minor.
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“Copy as Website Link” gives you ready-to-paste HTML for a web page. “Copy Link” copies the plain address for social media, email, or chat.
Disclaimer
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The IRS has released draft Schedule 1-A, introducing four new temporary deductions within the One Big Beautiful Bill Act. If you are wondering what the new form looks like and how the calculations work, read on as we explore each below.
