Key Takeaways
- Schedule 1-A is a new IRS form that attaches to Form 1040 to claim four OBBBA deductions: qualified tips, overtime premium pay, auto loan interest, and the senior bonus deduction.
- All four deductions are above-the-line - you claim them whether you take the standard deduction or itemize.
- The form has six parts. You only complete the sections that apply to your situation.
- The deduction amounts are: tips up to $25,000 per person, overtime premium up to $12,500 (single)/$25,000 (joint), auto loan interest up to $10,000, senior bonus $6,000/$12,000 (65+).
- All four deductions are temporary - 2025 through 2028 tax years only.
- Income phase-outs apply to all four deductions; thresholds vary by deduction type.
- Starting with 2026 income, the overtime and tips deductions require employer W-2 reporting (Box 12 codes TT and TP) - the IRS confirmed in August 2026 that there's no workaround if your employer doesn't report it.
Four new tax breaks. One new form. If you received tips, overtime pay, financed a new American-made car, or are 65 or older, Schedule 1-A is your ticket to a lower tax bill for 2025 through 2028.
The IRS created Schedule 1-A specifically to handle the new deductions introduced by the One Big Beautiful Bill Act (OBBBA). Think of it as a dedicated hub that calculates each deduction, applies the phase-out if your income is over the limit, and sends the total to Line 1 of Schedule 1 on your Form 1040.
Part of our OBBBA Tax Guide series — see all OBBBA provisions in one place.
The Four Deductions on Schedule 1-A
| Deduction | Max Amount | Phase-Out Starts | Expires |
|---|---|---|---|
| Qualified Tips | $25,000/person | $150,000 (single) / $300,000 (joint) | 2028 |
| Overtime Premium | $12,500 (single) / $25,000 (joint) | $150,000 (single) / $300,000 (joint) | 2028 |
| Auto Loan Interest | $10,000/year | $100,000 (single) / $200,000 (joint) | 2028 |
| Senior Bonus (65+) | $6,000 / $12,000 (joint) | $75,000 (single) / $150,000 (joint) | 2028 |
You only complete the parts that apply to you. A bartender who also bought a new Ford truck completes the tips and auto loan sections but skips the overtime and senior sections.
Part 1: No Tax on Overtime — The Premium Deduction
This is the most misunderstood of the four. The deduction does not apply to all overtime pay — only the premium portion. If you earn $20/hour and get paid $30 for overtime (time-and-a-half), only the extra $10 per hour is the premium you can deduct.
Who qualifies:
- Hourly and non-exempt employees under the Fair Labor Standards Act (FLSA)
- Workers whose overtime is mandated by FLSA (the premium over regular rate)
- Both W-2 employees and, in rare cases, workers who receive a 1099-NEC or 1099-MISC but are still classified as FLSA employees
Who does not qualify:
- Salaried employees who are FLSA-exempt (most managers, professionals, executives earning over $684/week)
- Workers who receive bonuses called “overtime” but not subject to FLSA mandates
- Self-employed individuals and independent contractors (no employer to mandate overtime under FLSA)
- Employee-owners with at least a 20% equity stake who are actively involved in managing the business — the IRS treats these people as exempt executives, per the August 2026 FAQ update, even if they’re paid hourly
Maximum deduction: $12,500 per individual. Married filing jointly: $25,000 combined.
Phase-out: Same as tips — starts at $150,000 MAGI (single) / $300,000 (joint). You must file jointly if married to claim this.
Example — Emily, Manufacturing Worker: Emily earns $18/hour. Her overtime rate is $27 ($18 × 1.5). The premium is $9/hour ($27 − $18). In 2025, Emily worked 800 hours of overtime, earning $7,200 in overtime premium pay. She deducts the full $7,200 on Schedule 1-A. In the 22% bracket, that’s $1,584 in tax savings.
Where to find your overtime premium on your W-2: For 2025 income, your W-2 won’t break this out automatically — you’ll calculate it from your pay stubs. Starting with 2026 income (filed in 2027), employers must report your qualified overtime premium in W-2 Box 12 using code “TT.” The IRS finalized this in an expanded FAQ (Fact Sheet FS-2026-13, August 6, 2026) and was explicit that there’s no transition relief left: if your employer doesn’t report a Box 12 code TT amount, you cannot deduct overtime beyond that number, and a self-prepared substitute form doesn’t fix it. If your employer’s number looks wrong, ask for a corrected Form W-2c — that’s the only way to fix an error.
→ Full overtime deduction guide with more examples: No Tax on Overtime — Who Qualifies and How to Calculate Your Deduction
Part 2: No Tax on Tips
The tips deduction covers voluntary tip income from one of the IRS’s 70+ designated tipped occupations (Treasury finalized the list in April 2026, effective June 12, 2026). Maximum $25,000 per person; same $150,000/$300,000 MAGI phase-out as overtime.
Your qualified tips come from W-2 Box 7. If you received cash tips you didn’t report to your employer, you can still claim them — but you must first report them on Form 4137. Starting with 2026 income, employers report tips in W-2 Box 12 using code “TP,” with your Treasury Tipped Occupation Code (TTOC) in Box 14b.
→ Full tips deduction guide: No Tax on Tips 2026–2027 — Who Qualifies, Income Limits, Examples
Part 3: Auto Loan Interest Deduction
Deduct up to $10,000 per year in interest paid on a loan for a new, American-assembled vehicle purchased for personal use on or after January 1, 2025. The vehicle’s VIN must confirm U.S. final assembly (your lender handles this reporting).
Phase-out starts at $100,000 MAGI (single) / $200,000 (joint), and the deduction vanishes completely at $150,000/$250,000. Starting with 2026 interest paid, lenders must furnish you Form 1098-VLI (first statements due by January 31, 2027).
→ Full auto deduction guide: Auto Loan Interest Deduction 2025–2028
Part 4: Senior Bonus Deduction (Ages 65+)
If you were 65 or older by December 31 of the tax year, you can claim an additional $6,000 deduction ($12,000 if both spouses qualify on a joint return) on top of your standard or itemized deductions. Phase-out starts at $75,000 MAGI (single) / $150,000 (joint).
→ Full senior deduction guide: $6,000 Senior Bonus Deduction — Do You Qualify?
How to File Schedule 1-A: Step by Step
Step 1: Calculate your MAGI. Part 1 of Schedule 1-A starts here. Your MAGI determines whether you get the full deduction or a reduced amount. For most people, MAGI equals AGI before these new deductions.
Step 2: Fill in only your applicable sections. Each deduction has its own part. Skip the ones that don’t apply. You need:
- For tips: W-2 Box 7 (2025) or Box 12 code TP (2026+), plus Form 4137 if applicable
- For overtime: pay-stub calculated premium pay (2025) or W-2 Box 12 code TT (2026+)
- For auto loan: interest statement from lender (Form 1098-VLI starting with 2026 interest) + vehicle VIN
- For senior bonus: your birth date (must be 65 by December 31)
Step 3: Total and transfer. The final section sums all your OBBBA deductions and passes the total to Schedule 1, which then flows to Form 1040 Line 10.
Step 4: Keep your records. W-2s, pay stubs, loan statements, and any VIN verification documents. The IRS may ask for them.
Most tax software handles all of this automatically. If you use a human tax preparer, mention all four deduction types — some preparers focused on traditional returns may not immediately ask about the newer provisions.
Common Issues to Watch Out For
The biggest mistake I see with the overtime deduction: people assume their entire overtime paycheck is deductible. Only the premium portion is. If you made $30 per hour instead of your usual $20, only the extra $10 per hour counts.
On tips: automatic gratuities don’t qualify. The 18% auto-added to a party of 10 is a service charge, not a tip.
On the auto loan: used cars don’t qualify. Refinanced balances on existing loans also have limitations. The vehicle must be new and the loan must originate after December 31, 2024.
For the senior bonus: married couples filing separately cannot claim it. Filing status matters more than people realize.
For 2026 and later returns: if your employer doesn’t separately report your tips or overtime premium using the correct W-2 box and code, you can’t use a workaround to claim more than what’s reported. Check your W-2 as soon as you get it and ask for a corrected W-2c right away if something looks off — don’t wait until you’re mid-return.
Things can evolve — especially with IRS guidance on documentation. I’ll update this page as new guidance comes in. Subscribe here to get notified.
Looking Ahead: 2027 and 2028
The 2026 tax year (returns filed in 2027) has better documentation tools than 2025 did. Employer W-2 Box 12 codes “TP” (tips) and “TT” (overtime), plus Box 14b for Treasury Tipped Occupation Codes, should make filing Schedule 1-A faster and cleaner — but they also mean the deduction is capped at whatever your employer actually reports.
All four deductions sunset after 2028. If no extension passes, 2028 returns (filed in early 2029) will be the last time you can use Schedule 1-A for these benefits.
For a full picture of how all OBBBA changes affect your 2026 tax return, see: 2026–2027 IRS Tax Brackets
