The Schedule 1-A Rounding Rule Almost Everyone Gets Backwards

Every one of the four deductions on Schedule 1-A phases out against the same number — the modified AGI computed in Part I. That symmetry makes it tempting to assume the four phaseouts work the same way.

They do not. They use different thresholds, different rates, and — the part almost everyone gets backwards — different rounding directions. Two of them round down. One rounds up. The difference is up to $100 of deduction per return, and it decides whether a dollar of extra income at a $1,000 boundary costs you anything at all.

The rule, straight off the form

Schedule 1-A does the phaseout arithmetic in four explicit steps: subtract the threshold from MAGI, divide the excess by $1,000, convert to a whole number, multiply by a rate. The conversion step is where the forms diverge.

Part II, tips — line 11: "Divide line 10 by $1,000. If the resulting number isn't a whole number, decrease the result to the next lower whole number. (For example, decrease 1.5 to 1, and decrease 0.05 to 0.)" Line 12 multiplies by $100.

Part III, overtime — line 19: word for word identical to line 11. Decrease to the next lower whole number. Line 20 multiplies by $100.

Part IV, car loan interest — line 28: "Divide line 27 by $1,000. If the resulting number isn't a whole number, increase the result to the next higher whole number. (For example, increase 1.5 to 2, and increase 0.05 to 1.)" Line 29 multiplies by $200.

Tips and overtime round down. Car loan interest rounds up. The statutory language explains why: the car loan provision reduces the deduction by $200 for each $1,000 "or portion thereof" of excess MAGI, while the tips and overtime provisions have no such phrase.

What that means at the margin

Consider a single filer with modified AGI of $150,400 — $400 over the tips threshold.

Dividing $400 by $1,000 gives 0.4. Line 11 says decrease it to the next lower whole number, which is zero. Multiply by $100 and the reduction is $0. The first $999 above the threshold costs nothing.

Run the same $400 through Part IV, where the threshold is $100,000 and the rounding goes the other way, and 0.4 becomes 1. Multiply by $200 and the reduction is $200. The first dollar over the car loan threshold costs a full step.

That is the opposite of the folklore. For tips and overtime, crossing a $1,000 boundary is what costs you — not touching it. For car loan interest, touching it is enough.

The four sets of numbers

Part V has no rounding step at all. Line 34 multiplies the raw excess by 6% and line 35 subtracts it from $6,000. Because it is a straight percentage rather than a stepped reduction, the arithmetic is clean: the senior deduction reaches zero once MAGI is $100,000 above the threshold — $175,000 for a single filer, $250,000 on a joint return.

The cap that is not doubled

One more asymmetry that reads like a typo but is not. The overtime cap doubles on a joint return, from $12,500 to $25,000. The tips cap does not. It is $25,000 regardless of filing status — the final regulations say so, and the Form 1040 instructions add that it "is not a per spouse limit."

Two spouses who each earned $20,000 of qualified tips share one $25,000 cap between them. Two spouses who each earned $15,000 of qualified overtime have $25,000 to work with.

Where the phaseouts actually end

Because tips and overtime are stepped, the point at which a deduction is fully consumed depends on how big it was to begin with. Each whole $1,000 of excess MAGI removes $100, so a deduction is exhausted after as many whole thousands as it contains hundreds. A full $25,000 tips deduction takes 250 of them — it survives until MAGI is $250,000 above the threshold. A $5,000 tips deduction is gone after 50.

That is worth stating precisely, because it is the opposite of a cliff: the smaller your deduction, the sooner it disappears. A worker with $4,000 of qualified tips loses the whole thing by $190,000 of MAGI. A worker with the full $25,000 keeps some of it up to $400,000.

What none of this changes

All four deductions sit on Form 1040 line 13b, separate from the standard or itemized deduction on line 12. Section 63(b) lists them, which is why you can claim them whether you itemize or not — and why they are not itemized deductions.

They also do not reduce adjusted gross income. Everything downstream that keys off AGI or MAGI — and that includes the Part I figure driving these very phaseouts — is unaffected. And they do not reduce Social Security tax or Medicare tax. Tips and overtime remain subject to federal income tax withholding and to both halves of FICA in the year you earn them.

Three of the four also require a joint return if you are married: tips, overtime and the senior deduction. Married filing separately gets nothing from Parts II, III and V. Part IV, car loan interest, imposes no joint-return condition on its face.

Before you file

1. Compute MAGI first. Part I is not decoration; every other part reads line 3.
2. Use the right rounding per part. Down for II and III, up for IV.
3. Do not double the tips cap on a joint return. Only the overtime cap doubles.
4. Check the joint-return and SSN conditions before you compute anything in Parts II, III and V.
5. Model a deferral at the boundary. Near a $1,000 step in Part II or III, a small timing change can be worth exactly one step — and near the Part IV threshold it can be worth $200.

Our free Schedule 1-A estimator stacks all four deductions and shows what each cap and each phaseout takes back. For the inputs, the Box 12 decoder reads the tips and overtime figures off a 2026 W-2, and the qualified-tips rules and the qualified-overtime rules decide what belongs on lines 6 and 14c in the first place.

Estimates and general information, not tax advice. Confirm your specific situation with a tax professional.