What You Need to Know About the New IRS Schedule 1-A!

This new form, called Schedule 1‑A, was introduced by the IRS beginning with the 2025 tax year. Although it is a new addition to the filing process, its purpose is straightforward. Give Taxpayers an easier way to claim several deductions that can meaningfully reduce taxable income. These deductions apply from 2025 through 2028 and are especially relevant for workers who earn tips or overtime, individuals paying interest on certain car loans, and Taxpayers who are 65 or older.

One of the most notable changes involves workers who earn tips. Under Schedule 1‑A, Taxpayers can deduct up to $25,000 of qualified tips each year. To qualify, the tips must come from a job that is not considered a Specified Service Trade or Business (which includes fields like health, law, accounting, actuarial science, performing arts, consulting, athletics, or financial services), and the occupation must have been one where tipping was already common before the end of 2024.

For example, a restaurant server who earns $18,000 in tips during 2025 would be able to deduct the full amount, since restaurant service meets the IRS requirements. This deduction is designed to give tipped workers a meaningful reduction in taxable income, especially in Industries where tips make up a large portion of earnings. The form also introduces a deduction for qualified overtime compensation. Workers can deduct up to $12,500 of overtime premiums, or up to $25,000 if they are Married Filing Jointly (MFJ). The overtime must be paid under the Fair Labor Standards Act or clearly identified on a W‑2 or 1099. If it isn’t listed separately, the IRS allows Taxpayers to calculate the amount using approved methods. For example, if a warehouse employee earns $9,000 in overtime premiums during the year, that full amount can be deducted as long as it’s properly documented. This deduction is especially helpful for workers in Industries where overtime is a regular part of the job.

Another deduction available on Schedule 1‑A relates to interest paid on certain car loans. Taxpayers can deduct up to $10,000 of interest paid on a new vehicle, but the vehicle must meet specific criteria. It must be newly purchased, assembled in the United States, have at least two wheels, weigh less than 14,000 pounds, and be used primarily for personal transportation. For instance, if someone buys a new U.S.-assembled SUV and pays $4,200 in interest during the year, they can deduct that entire amount. This deduction does not apply to used vehicles or vehicles assembled outside the United States.

Finally, Schedule 1‑A includes an enhanced deduction for Seniors. Taxpayers who are 65 or older can deduct up to $6,000, or up to $12,000 if both Spouses on a joint return are 65 or older. The IRS considers a Taxpayer to reach age 65 on the day before their birthday. This means someone born on January 10, 1960, is treated as 65 on January 9, 2025, and qualifies for the deduction for that tax year. This additional deduction is intended to provide extra support for older Taxpayers who may be transitioning into retirement.

All of these deductions are combined and reported on Form 1040, line 13b. While they do not reduce adjusted gross income, they do reduce taxable income, which can lower a Taxpayer’s overall tax bill. Schedule 1‑A will be used for tax years 2025 through 2028, with the first filings having occurred during the most recent tax season that ended in mid-April 2026.

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