Taxpayers must file Schedule 1‑A to claim new deductions for tips, overtime pay, auto loan interest, and senior citizens on their 2025 federal return.
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- Whether you itemize deductions such as claiming mortgage interest or claim the standard deduction, four new tax deductions will be available to eligible taxpayers on their federal returns.
- All four major tax credits created by the One Big Beautiful Bill Act, signed into law by President Donald Trump on July 4, will be treated as so-called “submarginal deductions.”
So far this tax season, tens of millions of taxpayers have found themselves filing a brand new form, called Schedule 1-A, to claim a new and generous tax break on their 2025 federal income tax returns.
If you don’t file this form with your 2025 tax return, you won’t receive the much-talked-about One Big Beautiful Bill Act tax relief. Forget big vacations like car loans, seniors, tip income, and overtime. If you don’t submit the correct form, you won’t get anything.
What is Schedule 1‑A? Who needs to file it?
Schedule 1-A is a new two-page federal income tax form that must be accurately completed and filed on your 2025 federal income tax return claiming:
All four deductions are available to eligible taxpayers, whether they itemize deductions such as claiming mortgage interest or claim the standard deduction.
Since most taxpayers claim the standard deduction, it’s important to know that you can still use Schedule 1-A to get tax breaks on new car loans, overtime pay, tip income, and bonus deductions for adults 65 and older.
Tips and overtime deduction system
Tom Oseven, registered agent and director of tax content and government relations for the National Association of Tax Professionals, says that while the brand-new deduction “feels easy,” there’s more to filling out Schedule 1-A when claiming tax relief for tips and overtime than simply copying the numbers from your W-2.
Taxpayers should remember that the IRS specifically states, for example, that tax credits for overtime can only be claimed for the “half” portion of “time and a half” pay. And depending on where you work, that exact number may not be on your 2025 W-2.
If you’re not careful, Oceben says, if you claim the full amount of your OT’s wages, or the full amount of money you receive for working more than 40 hours a week, you run the risk of over-reporting the amount of overtime that’s eligible for deductions.
Tax credits generally apply only to overtime that meets the definition under the Fair Labor Standards Act. This means that any hours worked in excess of 40 hours in a workweek will be paid at 1.5 hours.
The annual overtime deduction limit is $12,500 for singles and $25,000 for married couples filing jointly. If a husband and wife file separate returns, they will not be able to claim overtime deductions.
Income limits, detailed rules, and other limitations apply to all four tax cuts and currently apply for tax years 2025, 2026, 2027, and 2028.
Rules for new car loan interest deduction
For example, to claim a new deduction for a new auto loan on your 2025 tax return, Schedule 1-A includes a spot where you need to list the vehicle identification number associated with the auto loan you’re applying for.
To purchase a new car that will be final assembled in the United States, you will need to take out a car loan in 2025. This tax break does not apply to auto loans taken out to purchase used cars or new cars or trucks with final assembly outside the United States.
How seniors 65 and older can apply for enhanced deductions.
Adults age 65 and older are looking at the “Enhanced Elderly Deduction” section called “Part V.” You don’t have to be collecting Social Security benefits to claim the tax break, but you must be born before January 2, 1961 to claim the new tax credit on your 2025 return.
If you fill out Schedule 1-A, people age 65 and older can claim an additional $6,000 deduction on their 2025 return. But the deduction will begin to phase out for seniors with modified adjusted gross incomes of $75,000 for single filers and $150,000 for joint filers, meaning higher-income seniors will receive smaller or no tax breaks.
When it comes to phasing out, Oseven pointed out, there is no need for simple calculations. You can lose your deduction much faster than you think.
The four special tax credits created by the One Big Beautiful Bill Act are treated as so-called “sub-maximum deductions.”
Meaning: You can reduce your taxable income. But claiming these special deductions won’t reduce your adjusted gross income, Oseven said.
After your adjusted gross income is determined, deductions for car loan interest, tips, overtime pay, and how extra breaks for seniors are treated are subtracted. It won’t lower your AGI and won’t help you take advantage of credits or other tax breaks.
Where can I find IRS instructions regarding Schedule 1‑A?
On March 2, the Internal Revenue Service posted a step-by-step summary of Schedule 1-A, noting that the related instructions are part of the overall Form 1040 instructions.
The U.S. Treasury Department showed that nearly 45% of the 63.5 million tax returns processed as of March 8 claimed at least one new major tax cut.
And the Treasury Department has some interesting insights into the number of returns that claimed key tax credits on the new Schedule 1-A when filing their 2025 tax returns through March 8 of this year.
- According to the Treasury Department, there are more than 15.5 million tax returns claiming overtime pay tax deductions.
- As of March 8, more than 9.2 million applications have been filed to expand the elderly deduction.
- More than 3.5 million tax returns claim a tax credit for tips.
- Additionally, there have been more than 690,000 tax returns requesting deductions for auto loan interest on new cars and trucks that are finally assembled in the United States.
Contact personal finance columnist Susan Tompol: stompor@freepress.com. follow himr X @tompor.
