Schedule 1-A, Part by Part: Four New Deductions and the Phaseouts That Eat Them

# Schedule 1-A, Part by Part Four new deductions, one new form. Schedule 1-A (Form 1040), *Additional Deductions*, is where the tips, overtime, car loan interest and enhanced senior deductions all come together — and where a single number, your modified AGI, decides how much of each one survives. The form is short. The interactions are not. ## Part I: modified AGI, which drives everything Every phaseout on this form keys off the MAGI computed in Part I. For most filers it is simply AGI. The additions are narrow — excluded foreign earned income, the foreign housing deduction, and Puerto Rico or American Samoa income. The important thing about Part I is structural: **one income figure controls four separate phaseouts running at three different rates.** That is why a change in income has an outsized effect on this form compared to any single deduction you are used to. ## Part II: qualified tips — $25,000 Capped at **$25,000 per return**. Not doubled on a joint return, which surprises two-earner tipped households every time. Phases out by **$100 for each $1,000** of MAGI over **$150,000** ($300,000 joint), reaching zero at $400,000 ($550,000 joint). Requirements that are easy to miss: the tips must be **voluntary** (mandatory service charges are wages), the occupation must be on Treasury's **closed list** of tipped occupations, and you need a **Social Security number valid for work** issued by the return due date. An ITIN does not qualify. If you are married, you must file jointly. Your substantiation is Box 12 code **TP** on the 2026 W-2, with the occupation code in **Box 14b** — or the corresponding boxes on a 2026 Form 1099-NEC if you are a contractor. ## Part III: qualified overtime — $12,500 / $25,000 Capped at **$12,500** single, **$25,000** married filing jointly. Same $100-per-$1,000 phaseout over the same $150,000 / $300,000 thresholds. The definitional trap here is bigger than the arithmetic one. **Qualified overtime is only the FLSA-required premium** — the extra half in time-and-a-half — not the whole overtime paycheck. A client who tells you they earned $30,000 of overtime has probably earned about $10,000 of qualified overtime. Substantiation is Box 12 code **TT**. ## Part IV: car loan interest — $10,000 Capped at **$10,000**, and this is where the phaseout gets steep: **$200 for each $1,000** of MAGI over **$100,000** ($200,000 joint) — twice the rate that applies to tips and overtime, over a threshold that starts $50,000 earlier. It is gone by $150,000 ($250,000 joint). The eligibility conditions are the most restrictive on the form. The vehicle must be **new** (used vehicles do not qualify), **assembled in the United States**, under 14,000 lbs GVWR, for personal use, and secured by a **first lien** on a loan taken out after December 31, 2024. Part IV also asks for the **VIN**. Your substantiation is **Form 1098-VLI**, the Vehicle Loan Interest Statement. 2026 is the first year lenders actually file it with the IRS — for 2025 they only had to make the total available to you, which is why last year's version may have arrived as an ad-hoc letter. ## Part V: the enhanced senior deduction — $6,000 per person **$6,000** per qualifying individual age 65 or older, so **$12,000** on a joint return where both spouses qualify. The phaseout here works differently from the other three: a straight **6% of the excess** over **$75,000** ($150,000 joint), applied per qualifying person, with no rounding. One person's $6,000 is gone at $175,000. Two people's $12,000 is gone at $250,000 joint. It sits on top of the standard deduction and the existing additional deduction for age, and it is available whether you itemize or not. ## Three things that are true of all four **They are not automatic.** Your software knows your age, but Part V still has to be completed. Nothing on this form claims itself. **Married filing separately is out** for tips, overtime and the senior deduction — all three require a joint return. **The steps round up.** For tips, overtime and car loan interest, Schedule 1-A divides the excess MAGI by $1,000 and rounds *up* before multiplying. One dollar over a $1,000 boundary costs a full step — $100 on two of the parts, $200 on the third. ## Where planning actually lives Stack the phaseouts and something useful appears. A household inside the tips, overtime *and* car loan phaseouts loses $400 of deduction per $1,000 of additional MAGI. At a 22% marginal rate that is an extra 8.8 percentage points of effective tax on income that looks ordinary. Which means, for exactly these clients, a pre-tax retirement contribution or an HSA contribution is worth substantially more than the headline bracket implies — and a deferred December bonus can pay for itself twice. Our free [Schedule 1-A estimator](https://1040parser.com/tools/schedule-1a-estimator) stacks all four parts, shows what each phaseout removes, and reports what the next $1,000 of income costs across the whole form. *General information, not tax advice. Confirm figures against the current Schedule 1-A instructions and your client's specific facts.*