How to claim the tips and overtime deductions

The form is Schedule 1-A

The IRS created Schedule 1-A, Additional Deductions, published 2 March 2026, to handle four new deductions in one place: tips, overtime, car loan interest, and the extra deduction for people aged 65 and over.

• Part II — qualified tips
• Part III — qualified overtime compensation

The total from Schedule 1-A carries to Form 1040, line 13b. You claim it whether you take the standard deduction or itemise, so this is not a reason to start itemising.

You have to file it

Nothing about these deductions happens automatically. Your employer reports the amounts on your W-2, but the deduction only exists if you put it on Schedule 1-A. Filing a bare 1040 and assuming the IRS will apply it for you leaves the money unclaimed.

Commercial tax software handles the schedule, but you still have to answer its questions about tips and overtime rather than skipping past them.

What has to back it up

The amounts must be reported to you on a Form W-2, a 1099, or — for tips you reported yourself that your employer did not — Form 4137. Numbers you simply remember do not count.

This is why the codes on your W-2 matter so much. If Box 12 code TT is missing, you have nothing to substantiate the overtime deduction with.

Three conditions that disqualify people quietly

A Social Security number valid for employment

Required for both deductions. An ITIN does not work here.

Married taxpayers must file jointly

Filing separately disqualifies you entirely from both deductions — not a reduced amount, none at all. If you normally file separately, run the numbers both ways before deciding.

The income phase-out

Above $150,000 of modified AGI, or $300,000 filing jointly, both deductions shrink by $100 for every full $1,000 over the line.

The employer rule almost nobody mentions

This one catches people whose occupation ison Treasury’s list. Under the statute, tips are generally not qualified tips if your employer’s business is a specified service trade or business — health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage and similar fields, plus any business whose principal asset is the reputation or skill of its people.

The test is applied to the employer’s business, not to your job title. A massage therapist at a medical clinic and a massage therapist at a spa can have the same occupation code and different answers.

There is currently transition relief. IRS Notice 2025-69, issued 21 November 2025, effectively suspends enforcement of this disqualification until SSTB-specific final regulations are published. So the restriction exists in the law but is not being enforced yet. If you work for a business in one of those fields, this is worth watching — and worth asking a tax professional about rather than assuming either way.

Overtime: exempt employees do not qualify

The overtime deduction is for non-exempt employees owed overtime under the Fair Labor Standards Act or an equivalent state law. Salaried employees who are exempt do not qualify, however many extra hours they work and however their employer chooses to compensate them.

When you actually do this

For tax year 2026, you file in early 2027, using the W-2 you receive in January. There is nothing to do during the year except make sure your employer is tracking and reporting the amounts correctly — which is a conversation to have in November, not April.