New for 2025: Schedule 1-A and the Four New Deductions Advisors Need to Understand

Beginning with the 2025 tax year, the IRS has introduced a new Schedule 1-A to capture four temporary deductions created under the One Big Beautiful Bill Act (OBBBA).

At first glance, these deductions look straightforward. In reality, each comes with its own eligibility rules and income thresholds – and they all reduce taxable income without reducing Adjusted Gross Income (AGI). That distinction makes them more nuanced than most deductions taxpayers are used to seeing.

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🧾 The Four New Deductions at a Glance

1. No Tax on Tips Deduction Allows qualifying workers in tipped industries to deduct up to $25,000 of eligible tips. Phaseout begins at $150,000 MAGI (single) or $300,000 (joint).

   
   

2. No Tax on Overtime Deduction Provides a deduction of up to $12,500 (single) or $25,000 (joint) for eligible overtime pay. Phaseout begins at $150,000 (single) or $300,000 (joint).

   
   

3. No Tax on Car Loan Interest Deduction Allows taxpayers to deduct up to $10,000 of interest paid on qualifying car loans for new U.S.-assembled vehicles used personally. Phaseout begins at $100,000 (single) or $200,000 (joint).

   
   

4. Enhanced Deduction for Seniors Provides a $6,000 deduction for taxpayers aged 65 or older (double if both spouses qualify). Phaseout begins at $75,000 (single) or $150,000 (joint).

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⚖️ Why These Deductions Are Different

Most deductions fall into two familiar categories:

1. Above-the-line deductions – reduce AGI (e.g., IRA or HSA contributions)

2. Itemized deductions – reduce taxable income after AGI is calculated

These four OBBBA deductions sit in a middle category. They lower taxable income but do not lower AGI.

That distinction matters because modified AGI drives so many other calculations: Medicare premium brackets, Social Security taxation, education credits, Roth IRA eligibility, and more.

Until now, only one deduction worked this way – the Qualified Business Income (QBI) deduction, introduced by the 2017 Tax Cuts and Jobs Act.

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🧠 Why Advisors Should Pay Attention

These new deductions are neither simple nor universal. Each comes with individual rules, phaseouts, documentation requirements, and unique definitions. For advisors, this means careful coordination is essential. Projections, Medicare analyses, and cash-flow planning should all use accurate AGI inputs – not just taxable income – to avoid misleading assumptions.

Vivify and our advisor partners share a responsibility to help clients understand that these are not automatic or one-size-fits-all deductions. They require thoughtful review to confirm eligibility and to understand how each client’s AGI interacts with the rest of their financial plan.

In short: Schedule 1-A introduces four temporary deductions that look simple but carry real complexity. Advisors who understand their structure – and the difference between AGI and taxable income – will be best equipped to guide clients through this era of “in-between” deductions.