Form 1040 Schedule 1: Additional Income and Adjustments

Form 1040 Schedule 1 is a supplemental tax form used to report certain types of income and claim specific deductions that are not directly entered on the main Form 1040. The form is divided into two main sections: Part I for “Additional Income” and Part II for “Adjustments to Income.”

The totals calculated on Schedule 1 are then transferred to the primary Form 1040. This process helps determine a taxpayer’s Adjusted Gross Income (AGI) in calculating overall tax liability. Filing Schedule 1 is necessary for individuals with financial situations that extend beyond the scope of the standard Form 1040.

Reporting Additional Income on Part I

Part I of Schedule 1 is designated for reporting various income sources that do not have a specific line on the main Form 1040. Each line in Part I corresponds to a different category of income, some of which require information from other tax forms or schedules.

One item is taxable refunds, credits, or offsets of state and local income taxes, reported on Line 1. This applies if a taxpayer itemized deductions in a prior year for state and local income taxes, and then received a refund for some of those taxes. Alimony received from divorce or separation agreements executed before December 31, 2018, is also reported here, on Line 2a.

Business income or loss is reported on Line 3. Taxpayers who are self-employed, independent contractors, or operate a small business as a sole proprietorship must complete Schedule C, “Profit or Loss from Business,” to calculate their net income or loss. The final amount from Schedule C is then entered on this line.

Other income types detailed in Part I include gains or losses from the sale of business property, which are calculated on Form 4797 and entered on Line 4. Income from rental real estate, royalties, partnerships, S corporations, and trusts is reported on Line 5, with the total flowing from Schedule E. Farm income or loss, calculated on Schedule F, is entered on Line 6.

Unemployment compensation is reported on Schedule 1, specifically on Line 7. Taxpayers who received unemployment benefits will get a Form 1099-G from their state agency, which shows the total amount of compensation received. The final section of Part I, Line 8, is a catch-all for other types of income, such as prize or award money and gambling winnings.

Claiming Adjustments to Income on Part II

Part II of Schedule 1 is where taxpayers can claim certain deductions, known as adjustments to income. These are “above-the-line” deductions because they are subtracted from gross income to arrive at Adjusted Gross Income (AGI). These adjustments reduce a taxpayer’s taxable income regardless of whether they choose to take the standard deduction or itemize.

An adjustment is the educator expense deduction on Line 11, which allows eligible K-12 educators to deduct up to $300 of unreimbursed professional expenses. Another adjustment is the Health Savings Account (HSA) deduction on Line 13. Individuals with a high-deductible health plan who contribute to an HSA can deduct their contributions, which are calculated using Form 8889.

Self-employed individuals can claim several adjustments in this section. The deductible portion of self-employment tax, calculated on Schedule SE, is entered on Line 15. Contributions to self-employed SEP, SIMPLE, and qualified retirement plans are deducted on Line 16. The self-employed health insurance deduction, claimed on Line 17, allows self-employed taxpayers to deduct premiums paid for medical and dental insurance.

Other adjustments include the penalty on early withdrawal of savings, reported on Line 18, for those who incurred a penalty from a financial institution for withdrawing funds from a time-based account before its maturity date. The IRA deduction on Line 20 allows for a deduction of contributions made to a traditional IRA, though this may be limited based on income and whether the taxpayer is covered by a retirement plan at work. The student loan interest deduction on Line 21 allows taxpayers to deduct the interest they paid on a qualified student loan, as shown on Form 1098-E, up to a maximum of $2,500 per year.

Completing and Transferring Schedule 1 Totals

The final step in using Schedule 1 is to calculate the totals for each part and transfer them to the main Form 1040. This process integrates the additional income and adjustments into the overall tax calculation.

First, you must sum all the income lines in Part I, from Line 1 through Line 9. The result of this calculation is entered on Line 10, which is labeled “Total additional income.” This figure represents all the income that is not reported directly on the front page of Form 1040.

Next, you will sum all the adjustment lines in Part II, from Line 11 through Line 25. This total is entered on Line 26, labeled “Total adjustments to income.” This amount represents all the “above-the-line” deductions you are eligible to claim.

Once both totals are calculated, they are transferred to specific lines on Form 1040. The “Total additional income” from Schedule 1, Line 10, is entered on Line 8 of Form 1040. The “Total adjustments to income” from Schedule 1, Line 26, is entered on Line 10 of Form 1040. After completing these steps, the completed Schedule 1 must be attached to and filed with your Form 1040 tax return.