New Schedule 1-A deductions and your 2026 refund
Four deductions that sit below AGI
For tax years 2025 through 2028, federal law allows certain deductions for qualified tips, qualified overtime compensation, interest on some car loans, and an enhanced senior deduction. They are claimed on Schedule 1-A and they reduce taxable income after adjusted gross income is figured. IRS newsroom pages on working-family tax changes, and the dedicated calculators at NewDeduct, walk through caps and income phase-outs in detail. This page asks a narrower question: how those amounts, once you have a careful estimate, move a 2026 refund or balance due.
Because the deductions are below the line, they do not lower AGI for credits and phase-outs that use AGI or modified AGI. The Child Tax Credit phase-out, the EITC phase-out and many other income tests still see the higher AGI. What the deductions do is lower taxable income, which lowers ordinary income tax, which can raise a refund or cut a bill. That is helpful, and it is also easy to overstate if you treat a $6,000 deduction as a $6,000 refund. At a 12% marginal rate the tax reduction is about $720; at 22% it is about $1,320, before any interaction with credits that were already going to wipe out the tax.
Enter a computed Schedule 1-A total, do not guess the cap
Each deduction has its own cap and phase-out. Qualified tips are limited to $25,000 of tips on the return, with a modified-AGI phase-out. Qualified overtime is limited to the premium portion of overtime pay, with its own dollar caps that differ for joint and other returns. Car-loan interest has a $10,000 cap and a lower phase-out threshold than the tips deduction. The senior deduction is a per-person amount with a percentage phase-out, and it is separate from the additional standard deduction for age 65 that already appears in Revenue Procedure 2025-32. Stacking those rules in your head is how errors happen. Use a dedicated worksheet, then bring the total here.
On the refund calculator, the field labeled as other below-the-line deductions is the right place for a Schedule 1-A total you already computed, including on NewDeduct. Do not also add the same amount to itemized deductions, and do not add it to the standard deduction by hand; the tool subtracts it after the standard-or-itemize choice, which matches the idea of a separate below-the-line amount available either way, as IRS guidance has described these deductions. If you do not qualify, leave the field at zero. Typing a cap such as $25,000 without applying the phase-out will overstate the tax reduction.
When the deduction changes the refund less than you expect
If refundable credits already erase your income tax, a further deduction may not increase the refund. The Earned Income Credit and the additional Child Tax Credit can already take net tax to a negative number; lowering taxable income does not increase those credits, and it may not create a larger payment from the Treasury. In that situation the Schedule 1-A deduction is still legally relevant if you have tax, but it is not a second refund engine. Conversely, if you are in a steep ordinary bracket and have no refundable credits, the same deduction is worth more in tax dollars, which is why two households with the same tip income can see different refund changes.
Payroll taxes are another limit on expectations. IRS guidance on the tips and overtime deductions has emphasized that Social Security and Medicare taxes still apply. A “no tax on tips” headline is not a statement that box 4 and box 6 go away, and those amounts are not refunded as income tax solely because you claimed Schedule 1-A. State tax treatment may also differ. A federal deduction does not automatically flow to a state return. Check the state instructions rather than assuming conformity.
Timing and records before you file in 2027
The deductions apply to tax years 2025 through 2028, so they are relevant to the 2026 return you file in 2027. Year-end 2026 is still a planning window for things you can still document: a qualifying car-loan interest statement, tip logs that match reported amounts, and a clear record of overtime versus regular pay. After 31 December, the task is accurate filing, with a form and instructions that support Schedule 1-A. IRS Free File’s list of supported forms should be checked when the program reopens in January 2027; not every product, free or paid, will support every new schedule on day one.
Keep this site, NewDeduct and official IRS pages in their proper roles. Official pages win if anything conflicts. NewDeduct is the sister worksheet for caps and phase-outs. RefundTally is the worksheet that turns a deduction total, together with withholding and the main 2026 credits, into a refund or a bill. None of them is a signed Form 1040, and none of them is tax advice. If the amount is large or your facts are messy — pooled tips, a refinance, a mid-year marriage — use a qualified professional and the current Schedule 1-A instructions.
A short comparison with year-end moves
Some Schedule 1-A amounts are already fixed by December: tips already received, overtime already worked, interest already paid on a qualifying loan. Others still have a little planning room, such as whether a year-end paycheck includes more overtime or whether a newly purchased qualifying vehicle even meets the tests. Do not buy a car or rearrange a work schedule solely because a calculator showed a deduction; the deduction is a fraction of the cost at your marginal rate, and eligibility can fail on details such as final assembly or the definition of a qualified tip. Year-End Moves is the sister site for broader December tax planning; NewDeduct is the sister site for these four deductions; RefundTally is only the refund arithmetic after you have a number.
If you already used NewDeduct’s combined Schedule 1-A estimate, copy that combined figure once. If you computed only one of the four deductions, enter only that one, and do not assume the other three are zero without checking. A senior who also has a qualifying car loan may have two deductions; a tipped worker who is 65 may have tips and the senior deduction, each with a different phase-out. Adding them on the wrong line of a refund worksheet is as unhelpful as omitting one. When the official 2026 Schedule 1-A and its instructions are the version you will file, prefer those line numbers over any unofficial label, including ours.