Section 62: What Are Above-the-Line Tax Deductions?

Certain tax deductions can be subtracted from your total earnings to lower the amount of income subject to tax. These adjustments directly impact your final tax liability and are governed by specific rules and limitations set by tax authorities.

These deductions are available to all eligible taxpayers, regardless of whether they choose to itemize other expenses like mortgage interest or charitable gifts. The result of subtracting these deductions is your Adjusted Gross Income (AGI), which is a starting point for calculating other deductions and credits.

Defining Adjusted Gross Income

Adjusted Gross Income (AGI) is calculated before the standard or itemized deductions are taken. Section 62 of the Internal Revenue Code defines it as gross income minus a specific list of deductions. Gross income includes all income from sources like wages, dividends, business income, and retirement distributions. From this total, the tax code permits the subtraction of “above-the-line” deductions to arrive at AGI.

AGI is used by the Internal Revenue Service (IRS) to determine eligibility for many tax benefits. The ability to claim certain tax credits, such as education or retirement savings credits, can be phased out or eliminated if a taxpayer’s AGI exceeds specific levels. A lower AGI makes it more likely you will qualify for these additional benefits.

AGI also impacts the calculation of certain itemized deductions. The deduction for medical expenses is limited to the amount that exceeds 7.5% of a taxpayer’s AGI, so a lower AGI can allow for a larger deduction. Lenders may also use AGI to assess an individual’s financial standing for loan applications.

The calculation is: Gross Income – Above-the-Line Deductions = Adjusted Gross Income. They are called “above-the-line” because they are listed on Schedule 1 of Form 1040, before the AGI line itself. This is different from “below-the-line” deductions, such as the standard or itemized deductions, which are subtracted from AGI to determine taxable income.

Common Above-the-Line Deductions

A variety of expenses qualify as above-the-line deductions, each with specific eligibility rules and limits. These are reported on Schedule 1 of Form 1040 and directly reduce a taxpayer’s gross income.

Educator Expenses

Eligible educators can deduct unreimbursed business expenses. An eligible educator is a K-12 teacher, instructor, counselor, principal, or aide working at least 900 hours in a school year. The deduction is capped at $300 per educator. If two eligible educators are married filing jointly, they can deduct up to $600, but no more than $300 each. Qualifying expenses include books, supplies, and other materials used in the classroom.

Certain Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials

This deduction is for specific employee business expenses, claimed using Form 2106. Armed Forces reservists traveling more than 100 miles from home for service can deduct unreimbursed travel expenses. Qualified performing artists can deduct business expenses if they meet certain income and employer criteria. Fee-basis state or local government officials can deduct expenses related to their services.

Health Savings Account (HSA) Deduction

Individuals with a high-deductible health plan (HDHP) can make tax-deductible contributions to a Health Savings Account (HSA). For 2025, the HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. The maximum HSA contribution for 2025 is $4,300 for self-only coverage and $8,550 for family coverage. An additional $1,000 catch-up contribution is allowed for individuals 55 and older. Contributions are reported on Form 8889, and the deductible amount is transferred to Schedule 1.

Deductible part of Self-Employment Tax

Self-employed individuals pay both the employee and employer portions of Social Security and Medicare taxes, known as the self-employment (SE) tax. The SE tax rate is 15.3%, which includes 12.4% for Social Security up to an annual limit and 2.9% for Medicare. Taxpayers can deduct one-half of their total SE tax paid to compensate for the employer portion. This deduction is calculated on Schedule SE and claimed as an adjustment to income on Schedule 1.

Self-Employed SEP, SIMPLE, and Qualified Plans

Self-employed individuals and small business owners can make deductible contributions to retirement plans for themselves and their employees. These plans include Simplified Employee Pension (SEP) IRAs, SIMPLE IRAs, and other qualified plans like a solo 401(k). The deduction limits vary by plan type. For a SEP-IRA, contributions are limited to 25% of compensation or a maximum dollar amount ($69,000 for 2024). The final deductible contribution amount is entered on Schedule 1.

Traditional IRA Deduction

Contributions to a traditional Individual Retirement Arrangement (IRA) may be deductible. For 2024 and 2025, the maximum contribution is $7,000, or $8,000 for those age 50 and over. Deductibility depends on whether the taxpayer or their spouse is covered by a retirement plan at work and their modified adjusted gross income (MAGI). If covered by a workplace plan, the deduction is phased out at certain income levels. Your IRA custodian will send Form 5498 summarizing your contributions for the year.

Student Loan Interest Deduction

Taxpayers who paid interest on a qualified student loan can deduct the amount paid, up to $2,500 per year. The loan must have been for qualified education expenses for the taxpayer, spouse, or a dependent. The deduction is subject to MAGI limitations and cannot be claimed if your filing status is married filing separately. Your lender will typically send Form 1098-E showing the total interest paid for the year.

Alimony Paid

For divorce or separation agreements executed on or before December 31, 2018, the paying spouse can deduct alimony payments. The recipient spouse must include these payments as taxable income. For agreements executed after 2018, alimony is not deductible by the payer or considered income for the recipient. To claim the deduction for a pre-2019 agreement, the payer must report the recipient’s Social Security number on their tax return.

Reporting Deductions on Your Tax Return

To claim above-the-line deductions, you will report them on Schedule 1, “Additional Income and Adjustments to Income,” which is filed with your Form 1040. Each deduction has a specific line in Part II of the schedule, “Adjustments to Income.”

After entering all individual deduction amounts, you must sum them up. The total is entered on the line for “Total adjustments to income.”

This total from Schedule 1 is then transferred to the main Form 1040. This amount is subtracted from your gross income to calculate your Adjusted Gross Income (AGI).

Schedule 1 must be attached to your Form 1040 when you file your return. Electronic filing programs automatically handle the summation and transfer of these amounts and attach the necessary schedules.