Form 1040 Schedule 1: How to Report Additional Income and Adjustments for 2025

Overview of What is Form 1040 Schedule 1 and its Purpose

Form 1040 Schedule 1: Purpose and Function

• Form 1040 Schedule 1 is used to report additional income and adjustments to income that cannot be directly entered on Form 1040, 1040-SR, or 1040-NR.
• Part I of Schedule 1 is designated for additional income, such as taxable refunds, unemployment compensation, alimony received, or business income/loss, which is then transferred to line 8 of the main Form 1040.
• Part II is for adjustments to income, including certain business expenses for reservists, performing artists, or fee-basis government officials, which are reported on line 10 of the main Form 1040.
• It also serves as a correction tool for incorrect Form 1099-K amounts, such as payments for personal items sold at a loss or erroneous reporting, which are entered at the top of Schedule 1 to reduce taxable income.
• For 2025, Schedule 1 helps taxpayers reconcile discrepancies in reported income, especially from third-party payment platforms, ensuring accurate reporting of taxable and non-taxable transactions.

Who Needs to File Form 1040 Schedule 1?

Who Must File

• Taxpayers who have additional income or adjustments to income that cannot be reported directly on Form 1040, 1040-SR, or 1040-NR must file Schedule 1.
• Individuals who received Form(s) 1099-K reporting payments that were included in error (e.g., gifts, reimbursements) or for personal items sold at a loss must use Schedule 1 to adjust the reported amount.
• Self-employed individuals, sole proprietors, partners, or more-than-2% S corporation shareholders who paid for health insurance may claim the self-employed health insurance deduction on Schedule 1.
• Those who made contributions to a traditional IRA and are eligible for the IRA deduction must report it on Schedule 1.

Purpose of Form

• Schedule 1 is used to report additional income (Part I) and adjustments to income (Part II) that are not directly entered on the main Form 1040.
• Additional income includes business income, gains from asset sales, and other non-wage income.
• Adjustments to income include deductions like IRA contributions, self-employed health insurance, and educator expenses.

Filing Requirements

• Use Schedule 1 to report income or adjustments that cannot be entered directly on Form 1040, 1040-SR, or 1040-NR.
• For Form 1099-K, enter amounts reported in error or for personal items sold at a loss in the entry space at the top of Schedule 1.
• Report capital gains from personal items sold at a gain on Form 8949 and Schedule D, not on Schedule 1.
• Only report the correct portion of Form 1099-K amounts; the rest should be reported elsewhere based on transaction type.

General Instructions

• Part I of Schedule 1 reports additional income; the total is entered on Form 1040, line 8.
• Part II reports adjustments to income; the total is entered on Form 1040, line 10.
• Use the worksheet provided in the instructions for specific deductions like IRA contributions or self-employed health insurance.
• Do not include nondeductible IRA contributions or rollover contributions in the IRA deduction calculation.

Key Sections Form 1040 Schedule 1: Important parts of the form and what they cover

Additional Income

• Line 1: Taxable refunds, credits, or offsets of state and local income taxes – Report taxable refunds, credits, or offsets of state and local income taxes received in 2025. Use the State and Local Income Tax Refund Worksheet if the refund is for taxes paid in 2024 and you itemized deductions.
• Line 2a: Alimony received – Enter alimony or separate maintenance payments received under a divorce or separation agreement entered before December 31, 2018. Alimony received after that date is not taxable.
• Line 2b: Date of original divorce or separation agreement – Enter the month and year of the original divorce or separation agreement related to the alimony reported on line 2a. If multiple agreements exist, enter the one with the most income.
• Line 3: Business income or (loss) – Report business income or loss from operating as a sole proprietor. Attach Schedule C for details.
• Line 4: Other gains or (losses) – Include gains or losses from assets used in a trade or business. Attach Form 4797 if applicable, or Form 4684 for casualty losses.
• Line 5 – Rental real estate, royalties, partnerships, S corporations, trusts: Report income or loss from Schedule E.
• Line 6 – Farm income or (loss): Report income or loss from farming activities. Attach Schedule F.
• Line 7: Unemployment compensation – Report unemployment compensation received in 2025, as shown on Form 1099-G, box 1.
• Line 8a: Net operating loss (NOL) deduction – Enter any NOL deduction from an earlier year as a negative number. This reduces other income reported on lines 8b through 8z.
• Line 8b: Gambling – Report gambling winnings not related to a trade or business. Attach Form(s) W-2G if federal tax was withheld.
• Line 8c: Cancellation of debt – Report canceled debt, which may be shown on Form 1099-C, box 2. Some canceled debt may be nontaxable.
• Line 8d: Foreign earned income exclusion from Form 2555 – Enter the foreign earned income and housing exclusion from Form 2555, line 45, as a negative number.
• Line 8e: Income from Form 8853 – Report total amounts from Form 8853, lines 8, 12, and 26, related to health savings accounts or Archer MSAs.
• Line 8f: Income from Form 8889 – Enter total amounts from Form 8889, lines 16 and 20, related to health savings account distributions.
• Line 8g: Alaska Permanent Fund dividends – Report any dividends received from the Alaska Permanent Fund.
• Line 8h: Jury duty pay – Enter any jury duty pay received.
• Line 8i: Prizes and awards – Report prizes and awards received, excluding Olympic and Paralympic medals or USOC prize money.
• Line 8j: Activity not engaged in for profit income – Report income from activities not engaged in for profit; refer to Pub. 525 for guidance.
• Line 8k - Stock options: Report income from the exercise of stock options not otherwise reported on Form 1040 or 1040-SR, line 1h.
• Line 8l - Rental income from personal property: Report income from renting personal property if done for profit but not as a business; also see instructions for line 24b.
• Line 8m - Olympic and Paralympic medals and USOC prize money: Report value of medals and prize money; may be nontaxable if adjusted gross income is ≤ $1,000,000 ($500,000 if married filing separately); subtract via line 24c if nontaxable.
• Line 8n - Section 951(a) inclusion: Report pro rata share of subpart F income and section 956 amounts from controlled foreign corporations; enter sum from Forms 5471, Schedule(s) I, lines 1a–1h and line 2.
• Line 8o - Section 951A(a) inclusion: Report global intangible low-taxed income (GILTI) from controlled foreign corporations; enter sum from Form 8992, Part II, line 5; attach copies of Forms 8992.
• Line 8p - Section 461(l) excess business loss adjustment: Report excess business loss amount from Form 461, line 16.
• Line 8q - Taxable distributions from an ABLE account: Report distributions exceeding qualified disability expenses or not included in a qualified rollover; see Pub. 907 and Form 5329 for additional tax rules.
• Line 8r - Scholarship and fellowship grants not reported on Form W-2: Report amounts used for non-tuition expenses (e.g., room, board, travel) if you were a degree candidate.
• Line 8s: Nontaxable Medicaid waiver amounts included elsewhere.
• Line 8t - Pension or annuity from nonqualified deferred compensation or section 457 plan: Report pension or annuity received from such plans; may be shown in box 11 of Form W-2.
• Line 8u - Wages earned while incarcerated: Report wages received for services performed while incarcerated; may be reported on Form W-2 or Form 1099.
• Line 8v - Digital assets received as ordinary income not reported elsewhere: Report ordinary income from digital assets (e.g., forks, staking, mining) not reported elsewhere; exclude gifts or inheritances; brokers may issue Form 1099-DA.
• Line 8z - Other income: Report any other income not covered above; do not report nontaxable income such as child support, life insurance proceeds, gifts, or bequests; report foreign gifts/bequests over $100,000 or $20,116 from foreign entities on Form 3520, Part IV.
• Line 9 – Total other income (sum of 8a–8z).
• Line 10 – Combine lines 1 through 7 and 9 — this is your total additional income. Transfer this amount to Form 1040, line 8.

Part II Adjustments to Income

• Line 11 - Educator expenses: Deduction for qualified educator expenses paid during the tax year.
• Line 12 - Certain business expenses of reservists, performing artists, and fee-basis government officials: Includes business expenses for National Guard/reserve members traveling over 100 miles, performing artists, and fee-basis government officials. Attach Form 2106 for details.
• Line 13 - Health savings account deduction: Deduction for contributions to an HSA (excluding employer contributions, rollovers, and qualified distributions). Attach Form 8889.
• Line 14 - Moving expenses for members of the Armed Forces: Deduction for moving expenses due to a permanent change of station under military order. Attach Form 3903.
• Line 15 - Deductible part of self-employment tax: Deduction for half of self-employment tax. Calculate using Schedule SE.
• Line 16 - Self-employed SEP, SIMPLE, and qualified plans: Deduction for contributions to retirement plans if self-employed or a partner. Refer to Pub. 560 or Pub. 517 for ministers.
• Line 17 - Self-employed health insurance deduction: Deduction for health insurance premiums paid by self-employed individuals. Exceptions apply if multiple income sources or using Form 2555.
• Line 18 - Penalty on early withdrawal of savings: Deduction for penalties charged on early withdrawal of savings, reported on Form 1099-INT or Form 1099-OID.
• Lines 19a, 19b, and 19c - Alimony paid: Deduction for alimony payments under divorce agreements executed on or before December 31, 2018. Line 19a is for amount paid, Line 19b for recipient’s SSN, and Line 19c for date of original agreement.
• · Line 20 – IRA deduction.
• Line 21 - Student loan interest deduction: Deduction for interest paid on qualified student loans used for higher education expenses. Refer to Pub. 970 for details.
• Line 22 - Reserved for future use: No deduction allowed; reserved for future IRS use.
• Line 23 - Archer MSA deduction: Deduction for contributions to an Archer Medical Savings Account. See Form 8853.
• Lines 24a through 24z - Miscellaneous adjustments:

1. Line 24a - Jury duty pay: Deduct if jury duty pay was given to employer in exchange for salary.
2. Line 24b - Rental property expenses: Deductible expenses related to rental income from personal property not in a rental business.
3. Line 24c - Olympic/Paralympic medals and prize money: Nontaxable portion of value reported on line 8m.
4. Line 24d - Reforestation amortization and expenses: Expenses related to reforestation; see Form 4562 instructions.
5. Line 24e - Repayment of supplemental unemployment benefits: Repayments under the Trade Act of 1974; see Pub. 525.
6. Line 24f - Contributions to section 501(c)(18)(D) pension plans: Contributions to specific pension plans; see Pub. 525.
7. Line 24g - Chaplains’ contributions to section 403(b) plans: Contributions by certain chaplains; see Pub. 517.
8. Line 24h - Attorney fees and court costs for unlawful discrimination claims: Deductible only to the extent of gross income from such claims; see Pub. 525.
9. Line 24i: Attorney fees and court costs paid in connection with an award from the IRS for information provided that helped detect tax law violations, up to the amount of the award includible in gross income.
10. Line 24j: Housing deduction from Form 2555.
11. Line 24k: Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041), box 11, code A.
12. Line 24z: Other adjustments

• Line 25 – Total of all adjustments from lines 11–24z.
• Line 26 – Total adjustments to income — amount transferred to Form 1040, line 10

Related Schedules and Forms for Form 1040 Schedule 1

Form 1040

• Form 1040 is the main individual income tax return; Schedule 1 is attached to it to report additional income and adjustments to income.

Schedule C

• Reports business income or loss; taxpayers must attach Schedule C to Schedule 1 if they have business-related income or deductions.

Form 4797

• Reports gains or losses from the sale of business property or other assets; amounts from Form 4797 may be reported on Schedule 1.

Form 4684

• Reports gains or losses from casualty or theft; amounts from Form 4684 may be included on Schedule 1 for reporting other gains or losses.

Schedule E

• Reports rental real estate, royalties, partnerships, S corporations, trusts, etc.; amounts from Schedule E are reported on Schedule 1.

Schedule F

• Reports farm income or loss; taxpayers must attach Schedule F to Schedule 1 if they have farming-related income or expenses.

Form 2555

• Used to claim foreign earned income exclusion and housing deduction; amounts from Form 2555 are reported on Schedule 1.

Form 8853

• Reports income from Archer MSAs; qualified medical expenses from this form may be reported on Schedule 1.

Form 8889

• Used to claim health savings account deductions; taxpayers must attach Form 8889 to Schedule 1.

Form 461

• Used to report Section 461(l) excess business loss adjustment; this adjustment is reported on Schedule 1.

Form W-2

• Reports wages and other compensation; scholarship and fellowship grants not reported on Form W-2 may be reported on Schedule 1.

Form W-2G

• Reports gambling winnings and other payments to nonresident aliens; amounts not reported on Form W-2 may be reported on Schedule 1.

Form 1040-NR

• Used by nonresident aliens; Schedule 1 is attached to Form 1040-NR to report additional income and adjustments.

Form 2106

• Reports business expenses for reservists, performing artists, and fee-basis government officials; attach Form 2106 to Schedule 1.

Form 3903

• Reports moving expenses for members of the Armed Forces; attach Form 3903 to Schedule 1 if claiming moving expense deductions.

Schedule K-1 (1065)

• Reports a partner’s share of partnership income, deductions, and credits; excess deductions from this form may be reported on Schedule 1.

Schedule K-1 (1120-S)

• Reports a shareholder’s share of S corporation income, deductions, and credits; excess deductions from this form may be reported on Schedule 1.

Schedule K-1 (1041)

• Reports a beneficiary’s share of estate or trust income, deductions, and credits; excess deductions from this form may be reported on Schedule 1.

Common Mistakes to Avoid on Form 1040 Schedule 1

Key Errors to Prevent

• Incorrect or missing personal information: Ensure names, Social Security numbers, and addresses are entered exactly as they appear on official documents. Any mismatch can delay processing or trigger an audit.
• Wrong filing status: Select only one filing status and confirm it matches your marital and household situation. Choosing incorrectly affects deductions and credits.
• Missing or misreported income: Include all income sources, such as alimony, gambling winnings, stock options, and state tax refunds. Attach required forms like W-2G or Form 4797 if applicable.
• Skipping necessary attachments: Attach all required schedules and forms in the correct order, including Form W-2, Form 1099-R, and any supporting documents for deductions or credits.
• Incorrectly calculating adjustments: Use the correct worksheets for deductions like student loan interest or state tax refunds. Errors in these calculations can lead to over- or under-reporting income.
• Unsigned or undated return: Both spouses must sign and date a joint return. An unsigned return is invalid and will be rejected by the IRS.
• Incorrect bank account details for refunds: Double-check routing and account numbers for direct deposit. Mistakes here can result in delayed or lost refunds.
• Filing too early: Wait until all tax documents (W-2s, 1099s) are received before filing. Submitting prematurely may lead to errors or corrections later.
• Not using e-file: E-filing reduces errors and speeds up processing. The system often catches mistakes before submission.
• Incorrectly claiming dependents: Verify dependent eligibility and enter correct information, including qualifying for child tax credit or credit for other dependents.

Helpful Tips for Completing Form 1040 Schedule 1: Best Practices

Report Non-Wage Income Accurately

• Include bartering income by reporting the fair market value of goods or services received on Schedule 1 if not related to a business. If business-related, use Schedule C instead.
• Report unemployment compensation from Form 1099-G in Box 1 on Schedule 1 and include any federal tax withheld in Box 4 on Form 1040.
• Report gambling winnings on Schedule 1, even if not reported on Form W-2G, and deduct gambling losses up to the amount of winnings as "Other Itemized Deductions."
• Report rental income from personal property rentals not conducted as a business on Schedule 1, using line 8l for income and line 24b for expenses.
• Report earnings from clergy, such as fees for marriages or baptisms, as self-employment income on Schedule C if acting as an independent contractor; otherwise, report on Schedule 1 if not business-related.
• Report distributions from 401(k) plans that are taxable, including hardship withdrawals, and note any additional 10% tax if under age 59½ unless an exception applies.
• Ensure all income reported on Schedule 1 is properly categorized and supported by documentation such as Form 1099-B for bartering or Form W-2G for gambling winnings.

Source

• For more up-to-date information visit https://www.irs.gov Government website.
• Refer to the Instructions for Form 1040 Schedule 1 for detailed information.