Schedule 1-A: the four OBBBA deductions explained

Schedule 1-A is new for tax year 2025 and runs through 2028, after which all four deductions lapse under current law. All four share two features: they are above the line, so you get them whether you itemize or take the standard deduction, and each phases out at higher income.

Qualified tips, up to $25,000

Tips are deductible only if your occupation appears on the IRS list of occupations that customarily and regularly received tips as of 31 December 2024, and the tips are reported on a W-2, 1099 or Form 4137. Married taxpayers must file jointly to claim it. Tips earned in a specified service trade or business (SSTB), the same category used for the section 199A QBI limitation, are excluded by statute, though IRS transition relief currently suspends enforcement of that exclusion for this tax year.

Qualified overtime, up to $12,500 ($25,000 MFJ)

This is the deduction most people get wrong. It does not cover your full overtime pay, only the premium portion, the “half” in “time and a half”. If you earn $20 an hour and work overtime at $30 an hour, only the extra $10 an hour is qualified overtime compensation, the other $20 is ordinary wages you were already going to be paid for the hours worked. If your employer voluntarily pays a richer premium than the FLSA requires, only the FLSA-required half-time amount counts, not the extra your employer chose to pay. The overtime must be required under FLSA section 7, and you need a valid SSN.

Car loan interest, up to $10,000

Covered in full in its own guide, since the vehicle eligibility rules (new, US-assembled, under the GVWR limit, purchased not leased) are extensive enough to need separate treatment.

Enhanced deduction for seniors, up to $6,000 per person

Available if you (or your spouse, filing jointly) are 65 or over by the last day of the tax year. It stacks on top of the existing additional standard deduction that already applies at 65, it is a separate deduction, not a replacement. A married couple where both spouses qualify gets the per-person amount twice.

How the phaseouts differ

Tips, overtime and car loan interest all phase out in discrete steps: for every $1,000 of MAGI over the threshold, rounded down, the deduction drops by a fixed dollar amount per step. The senior deduction phases out continuously instead, at a flat 6% of every dollar of MAGI over its threshold, with no step rounding. Because the thresholds themselves differ by deduction too (tips and overtime phase out from a higher MAGI than car loan interest or the senior deduction), it is possible to lose one deduction to income while still fully qualifying for another.

All four total to line 13b

Whatever you qualify for across all four gets added together on Schedule 1-A and flows to Form 1040 line 13b as a single above-the-line deduction, reducing adjusted gross income before the standard deduction or itemized deductions are applied.

Next steps

Run all four deductions together, with your own MAGI, filing status and eligibility answers, through the Schedule 1-A Combined Deduction Estimator to see your total for line 13b.