IRS Releases Draft Schedule 1-A Form for New 2025 Tax Deductions Under the OBBBA
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Overview of New Schedule 1-A (Form 1040)
The IRS has released a draft of Schedule 1-A (Form 1040) – a new form designed to simplify reporting of several deductions created by the One Big Beautiful Bill Act (OBBBA). This marks one of the first major implementation steps for the law, which introduced temporary tax breaks for workers and retirees. The form consolidates deductions for tips, overtime, car loan interest, and an enhanced deduction for seniors, all available for the 2025–2028 tax years.
These deductions are considered “below the line,” meaning they reduce your taxable income but do not affect your Adjusted Gross Income (AGI). They apply only to the 2025–2028 tax years and can be claimed whether or not you itemize deductions.
A Closer Look at the Four New Deductions
The OBBBA aims to make certain forms of compensation and expenses more tax-friendly, especially for wage earners and seniors. Here’s what the IRS draft reveals about how each deduction will work.
1. “No Tax on Tips” Deduction
Who qualifies: Employees who receive qualified tips—cash or credit card tips reported on a Form W-2, Form 1099-NEC, Form 1099-MISC, or Form 1099-K.
Deduction limit: Up to $25,000 per filer.
Phaseout range: Begins at $150,000 of Modified Adjusted Gross Income (MAGI) for single filers ($300,000 for joint filers).
Exclusions: Taxpayers must have a valid Social Security number and, if married, must file jointly.
Example: A restaurant server who reports $20,000 in qualified tips may be able to deduct that amount—subject to income phaseout limits.
2. “No Tax on Overtime” Deduction
Who qualifies: Wage earners who receive qualified overtime pay (the additional “half” in time-and-a-half pay) as reflected on Form W-2 or other qualifying income statements.
Deduction limit: Up to $12,500 per filer ($25,000 for joint filers).
Phaseout range: Begins at $150,000 MAGI for single filers ($300,000 for joint filers).
Exclusions: Only federally required overtime under the Fair Labor Standards Act counts—state-specific overtime rules do not.
Example: An eligible hourly employee earning $10,000 in qualified overtime may deduct that amount, subject to the same phaseout and filing rules as the tips deduction.
3. “No Tax on Car Loan Interest” Deduction
Who qualifies: Taxpayers who purchased a new, personal-use vehicle after December 31, 2024. The vehicle must be assembled in the United States, have a gross vehicle weight rating under 14,000 lbs, and be secured by a loan lien.
Deduction limit: Up to $10,000 per filer for interest paid.
Phaseout range: Begins at $100,000 MAGI for single filers ($200,000 for joint filers).
Exclusions: Used vehicles, leased vehicles, and business-use vehicle loans do not qualify.
Example: A joint filer with $6,500 in interest on a qualified auto loan and MAGI below $200,000 could claim the full deduction.
4. Enhanced Deduction for Seniors
Who qualifies: Individuals or couples age 65 and older with valid Social Security numbers who file jointly if married.
Deduction limit: $6,000 per filer ($12,000 for joint filers).
Phaseout range: Begins at $75,000 for single filers ($150,000 for joint filers).
Example: A retired couple with $120,000 in joint MAGI could claim most of the $6,000 enhanced deduction before phaseout.
What Taxpayers Should Know
While the names of these provisions—“No Tax on Tips,” “No Tax on Overtime,” and so on—suggest complete exemptions, they’re actually deductions, not exclusions. That means they reduce taxable income, not the total tax owed, and do not eliminate reporting requirements. Each deduction also has income limitations and phaseouts, which means not all taxpayers will benefit equally. The IRS is expected to release detailed instructions later this year clarifying calculation methods and supporting documentation.
Next Steps for 2025 Filings
The draft Schedule 1-A and related changes to Form W-2 and Form 1099 mark an early step in implementing the OBBBA’s taxpayer-focused provisions. Final versions are expected before the 2025 filing season.
Wendroff & Associates will continue monitoring IRS guidance to help our clients plan proactively for the 2025 filing season. If you’d like to discuss how these deductions may apply to your situation, schedule a tax strategy session with our team using the FREE CONSULT button below.
