What Is Schedule 1 on a Tax Return?

Schedule 1 of Form 1040 serves as a supplementary document for U.S. individual income tax returns. It reports income and adjustments that do not fit directly on the main Form 1040. Schedule 1 covers a broad range of financial activities beyond typical wages or salaries. This form plays a significant role in accurately calculating a taxpayer’s total income and determining eligible deductions, reflecting all relevant income streams and qualifying reductions.

Income Reported on Schedule 1

Schedule 1 is where taxpayers report various income sources not captured on the primary Form 1040. These include taxable state and local income tax refunds, which must be reported if the taxpayer itemized deductions and received a tax benefit. Alimony received is another income type reported here, specifically for divorce or separation agreements executed before 2019. Under the Tax Cuts and Jobs Act of 2017, alimony payments finalized after December 31, 2018, are no longer taxable or deductible.

Business income or loss, derived from self-employment or sole proprietorships, is summarized on Schedule 1 after being calculated on Schedule C. Similarly, income or loss from rental real estate, royalties, partnerships, S corporations, and trusts, which are detailed on Schedule E, flow through to Schedule 1. Farm income or loss, typically reported on Schedule F, also contributes to the total income listed on Schedule 1.

Unemployment compensation is reported on Schedule 1. Gambling income, including winnings from lotteries, raffles, and casinos, is also reported here. Other miscellaneous income sources, such as jury duty pay, prizes and awards, and certain scholarship or fellowship grants not reported on a Form W-2, are also included.

Adjustments to Income on Schedule 1

Schedule 1 allows taxpayers to claim specific “above-the-line” deductions, which are adjustments that reduce gross income to arrive at Adjusted Gross Income (AGI). These include educator expenses for unreimbursed business expenses. Certain business expenses for reservists, performing artists, and fee-basis government officials can also be deducted on this schedule.

Contributions to a Health Savings Account (HSA) are deductible. Moving expenses are generally limited to members of the Armed Forces who move due to a permanent change of station. Self-employed individuals can deduct one-half of their self-employment taxes paid, as well as health insurance premiums, on Schedule 1.

Contributions made to self-employed SEP, SIMPLE, and qualified retirement plans are deductible. A penalty for early withdrawal of savings is another common adjustment. Alimony paid is deductible for divorce or separation agreements executed before 2019. Contributions to an Individual Retirement Arrangement (IRA) are deductible, subject to income limitations and whether the taxpayer is covered by a retirement plan at work. The student loan interest deduction allows taxpayers to deduct interest paid on qualified student loans.

How Schedule 1 Connects to Form 1040

Schedule 1 acts as a bridge, consolidating various income types and deductions before they are reflected on the main Form 1040. Part I of Schedule 1 sums all the additional income sources, such as unemployment benefits or business income. This total additional income is then transferred to a specific line on Form 1040, contributing to the taxpayer’s overall gross income.

Part II of Schedule 1 aggregates all the “above-the-line” adjustments to income, like student loan interest or IRA contributions. The total amount of these adjustments is then carried over to another designated line on Form 1040. The net effect of Schedule 1, combining the additional income and the adjustments, directly influences the calculation of the taxpayer’s Adjusted Gross Income (AGI) on Form 1040.

AGI is a foundational figure in tax calculations, impacting eligibility for various tax credits and other deductions. By accurately reporting all necessary information on Schedule 1, taxpayers ensure their AGI is correctly determined. This precise calculation helps in computing the final tax liability and maximizing any eligible tax benefits.