Generating the Schedule 1-A in Lacerte

For tax year 2025 the IRS is releasing a new Schedule 1-A. This form is new and still pending final instructions. The form has been released and is still in draft Lacerte.

Table of contents:

Modified Adjusted Gross Income adjustments on the Schedule 1-A

To enter an amount for the Schedule 1-A line 2a:

1. Go to Screen 24, Adjustments to Income.
2. Select the MAGI Adjustment section.
3. Enter the amount on the Income from Puerto Rico excluded line.

To enter an amount for the Schedule 1-A line 2b or 2c:

Lacerte will flow these amounts from the 2555 lines 45 and 50. For information on generating the 2555 see here.

To enter an amount for the Schedule 1-A line 2d:

1. Go to Screen 24, Adjustments to Income.
2. Select the MAGI Adjustment section.
3. Enter the amount on the Income from American Samoa excluded (from Form 4563) line.

What is No Tax on Tips?

New deduction: Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.

• “Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing
• Maximum annual deduction is $25,000; for self-employed, deduction may not exceed individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.
• Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)

Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers. Self-employed individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible. Employees whose employer is in an SSTB also are not eligible. Taxpayers must:

• Include their Social Security number on the return
• File jointly if married, to claim the deduction

Reporting: Employers and other payors must file information returns with the IRS (or SSA) and furnish statements to taxpayers showing certain cash tips received and the occupation of the tip recipient.

Treasury and IRS provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and payors subject to the new reporting requirements.

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How to enter qualified tips to be included on the Schedule 1-A?

To enter an amount to show on Schedule 1-A line 4a as qualified tips received as an employee on Form W-2 Box 7:

1. Go to Screen 10, Wages, Salaries, Tips.
2. Enter the amount on box 7 as Social security tips.
3. Scroll down to Box 14.
4. On the Qualified tips received as an employee field enter the amount of qualified tips.

To enter an amount to show on Schedule 1-A line 4b as Qualified tips included on Form 4137 but not included on the W-2 box 7:

1. Go to Screen 10, Wages, Salaries, Tips.
2. Scroll down to the Form 4137 section.
3. Enter the amount on the best applicable line for the tax situation.

To enter an amount to show on Schedule 1-A line 5 as qualified tips from 1099-NEC:

1. Go to Screen 14.1, Miscellaneous Income.
2. Scroll down to the Form 1099-NEC section.
3. Enter the amount as Cash tips.
   • Only the amount greater than the amount in box (1) Nonemployee compensation will show on Schedule 1-A line 5.

To enter an amount to show on Schedule 1-A line line 5 as qualified tips from 1099-MISC:

1. Go to Screen 14.1, Miscellaneous Income.
2. Scroll down to the Form 1099-MISC section.
3. Enter the amount as Cash tips.
   • Only the amount greater than the amount of income will show on Schedule 1-A line 5.

Common community discussions about the Tip Deduction Calculation:

• IRS Guidance on Overtime and Tips for Tax Year 2025. See here.

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What is No Tax on Overtime?

New deduction: Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (such as the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.

• Maximum annual deduction is $12,500 ($25,000 for joint filers).
• Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.

Taxpayers must:

• Include their Social Security number on the return and
• File jointly if married, to claim the deduction.

Reporting: Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.

Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements.

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How to enter qualified overtime to be included on the Schedule 1-A?

To enter the amount of overtime on a W-2 for the Schedule 1-A line 14a:

1. Go to Screen 10, Wages, Salaries, Tips.
2. Enter the amount on box 1 per the W-2 received.
3. Scroll down to Box 14.
4. On the Qualified overtime compensation included on Form W-2, box enter the qualified amount.

To enter the amount of overtime on a 1099-NEC for the Schedule 1-A line 14b:

1. Go to Screen 14.1, Miscellaneous Income.
2. Scroll down to the Form 1099-NEC section.
3. Enter the amount as Overtime compensation.

To enter the amount of overtime on a 1099-MISC for the Schedule 1-A line 14b:

1. Go to Screen 14.1, Miscellaneous Income.
2. Scroll down to the Form 1099-MISC section.
3. Enter the amount as Overtime compensation.

Common community discussions about the Overtime Deduction Calculation:

• IRS Guidance on Overtime and Tips for Tax Year 2025. See here.

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What is No Tax on Car Loan Interest?

New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)

• Maximum annual deduction is $10,000.
• Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:

• Originated after December 31, 2024
• Used to purchase a vehicle originally used by the taxpayer (used vehicles do not qualify)
• For a personal use vehicle (not for business or commercial use)
• Secured by a lien on the vehicle

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.

To determine if a vehicle had final assembly in the U.S., check one of these:

• The information label attached to the vehicle on a dealer's premises
• The vehicle identification number (VIN)
• The National Highway Traffic Safety Administration (NHTSA) VIN Decoder

Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers. The taxpayer must include the vehicle identification number (VIN) of the vehicle on the tax return for any year when the deduction is claimed.

Reporting: Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.

Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.

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How to enter qualified car loan interest to be included on the Schedule 1-A?

To enter a qualified vehicle for the No Tax on Car Loan Interest:

1. Go to Screen 24, Adjustments to Income.
2. Select the No Tax on Car Loan Interest (Schedule 1-A) section.
3. Click in the Applicable Passenger Vehicle (Ctrl+E) field and press Ctrl+E to open the entry box.
4. Enter the VIN, the Interest Deducted Elsewhere and the Interest for Schedule 1-A for each qualified vehicle.

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What is the Enhanced Deduction for Seniors?

• New deduction: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.
  • The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
  • Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
• Qualifying taxpayers: To qualify for the additional deduction, a taxpayer must attain age 65 on or before the last day of the taxable year.
• Taxpayers must include the Social Security Number of the qualifying individual(s) on the return, and file jointly if married, to claim the deduction.

How to enter the Enhanced Deduction for Seniors?

Lacerte will automatically calculate Part V of the Schedule 1-A when the taxpayer and spouse meet the requirements.

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