Adjustments to Income and the Schedule 1-A Deductions

The above-the-line adjustments on Schedule 1 (half of SE tax, IRA, HSA, self-employed health insurance, student loan interest, educator expenses and others) and the four new 2025 deductions on Schedule 1-A for tips, overtime, car loan interest and seniors. The SEE tests eligibility, dollar caps and the MAGI phase-downs, and whether a deduction lowers AGI.

Income and Assets5 min read6 sections

Must-know for the exam

Schedule 1-A deductions go on Form 1040 line 13b: they reduce taxable income, not AGI, and are allowed with or without itemizing (P.L. 119-21; 2025 Form 1040 instructions).
Qualified tips: up to $25,000 per return, cut by $100 per full $1,000 of MAGI over $150,000 ($300,000 MFJ) (IRC 224(b); Schedule 1-A (2025)).
Qualified overtime is only the FLSA premium; cap $12,500 ($25,000 MFJ) with the same $150,000/$300,000 phase-down (IRC 225; Schedule 1-A (2025)).
Car loan interest: up to $10,000 on a new US-assembled personal vehicle loan made after 2024, cut $200 per $1,000 or part over $100,000 ($200,000 MFJ) (IRC 163(h)(4)).
Senior deduction: $6,000 per person born before January 2, 1961 with a valid SSN, cut 6% of MAGI over $75,000 ($150,000 MFJ) (IRC 151(d)(5)(C)).
Tips, overtime and senior deductions require a joint return if married; car loan interest does not (Schedule 1-A (2025) and instructions).
2025 HSA limits: $4,300 self-only, $8,550 family, plus $1,000 catch-up at 55; nonqualified distributions bear a 20% additional tax (IRC 223; Pub. 969 (2025)).
Student loan interest: up to $2,500, phased out at MAGI $85,000-$100,000 ($170,000-$200,000 MFJ); not allowed MFS (IRC 221; Rev. Proc. 2024-40 sec. 3.30).
Educator expenses: up to $300 per eligible educator, $600 on a joint return with two educators (IRC 62(a)(2)(D); Rev. Proc. 2024-40 sec. 3.13).
Self-employed health insurance is barred for any month the taxpayer could join a subsidized plan of an employer or spouse's employer (IRC 162(l)(2)(B)).

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Traps that cost marks

Treating the new deductions as above-the-line adjustments.
Treating every gratuity a server receives as a qualified tip.
Doubling the tips cap on a joint return as the overtime cap is doubled.
Deducting all overtime earnings instead of the FLSA premium only.
Assuming the deduction is for business vehicles.
Assuming every new 2025 deduction requires a joint return.
Tying the senior deduction to Social Security benefits or itemizing.
Pooling the $600 joint maximum between spouses.

Why it matters on the exam

Adjustments reduce AGI, and AGI drives many later limits, so the SEE asks both whether an item is deductible and where it lands on the return. For 2025 the One Big Beautiful Bill Act added four deductions on a new Schedule 1-A. They sit below AGI, which is the first thing to remember about them.

Expect computations of the MAGI phase-downs, where the rounding rules differ: tips and overtime round down, car loan interest rounds up.

Classic Schedule 1 adjustments

Adjustment	2025 rule	Authority
Half of SE tax	SE tax on 92.35% of net profit; half is deductible. $50,000 profit gives a $3,532 deduction	IRC 164(f), 1402(a)(12)
Traditional IRA	Up to $7,000 ($8,000 at 50+); spousal IRA uses joint compensation	IRC 219; Pub. 590-A (2025)
HSA	$4,300 self-only, $8,550 family, +$1,000 at 55+	IRC 223(b); Pub. 969 (2025)
Student loan interest	Up to $2,500; MAGI $85,000-$100,000 single	IRC 221; Rev. Proc. 2024-40 sec. 3.30
Educator expenses

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