Last Updated:
Article #: 19042
Overview
Many taxpayers need only Form 1040 and no schedules for a complete return. For a more complicated return (for example, a taxpayer claiming certain deductions or credits or one that owes additional taxes), one or more of the Form 1040 schedules are generated and completed by Drake Tax.
Following is a brief description of the uses for Schedules 1, 2, and 3.
Schedule 1
Schedule 1, Additional Income and Adjustments to Income, reports the taxpayer’s additional income (business income, farm income or loss, capital gains, unemployment compensation, etc.), and claims any adjustments for such items as student loan interest, health savings accounts, the deductible part of self-employment tax, and educator expenses not reported directly on Form 1040.
Most Schedule 1 entries are made using screens 3 (Income) and 4 (Adjustments), but data also flows to Schedule 1 from such income screens as 99G (1099-G, Certain Government Payments), 4797 (Sales of Assets), E (Rent and Royalty Income), K1P (Partnership K-1), K1S (S Corp. K-1), and K1F (Fiduciary K-1).
Note
- Beginning with tax year 2025, attach Schedule 1-A, Additional Deductions, to Form 1040, 1040-SR, or 1040-NR to figure four deductions enacted under the One, Big, Beautiful Bill (also called the Working Families Tax Cuts):
- qualified tips
- qualified overtime
- qualified passenger-vehicle loan interest
- the enhanced deduction for seniors
- Part I of Schedule 1-A computes modified adjusted gross income (MAGI) used to limit these deductions; it is not a separate deduction.
- Eligible taxpayers may claim these deductions whether they take the standard deduction or itemize.
- For tax years 2025 and 2026, IRS Schedule 1-A uses the following maximum amounts (before MAGI-based limits):
- qualified tips, up to $25,000
- qualified overtime, up to $12,500 ($25,000 if married filing jointly)
- qualified passenger-vehicle loan interest, up to $10,000
- enhanced deduction for seniors, up to $6,000 per eligible individual ($12,000 if both spouses on a joint return qualify)
- MAGI phaseouts begin above $150,000 ($300,000 joint) for tips and overtime, $100,000 ($200,000 joint) for vehicle-loan interest, and $75,000 ($150,000 joint) for the senior deduction.
- See IRS Schedule 1-A instructions for eligibility and worksheet calculations.
- In Drake Tax, use screen 1 (Additional Deductions) to enter amounts that flow to Schedule 1-A.
Schedule 2
Schedule 2, Additional Taxes, reports alternative minimum tax and excess advance Premium Tax Credit repayments, self-employment tax, household employment taxes, and additional tax on IRAs or other qualified retirement plans and tax-favored accounts.
Apart from screen 5 (Taxes, Credits, and Payments), many Schedule 2 entries are made on such tax-reporting screens as 6251 (Alternative Minimum Tax), 95A (1095-A, Marketplace Statement), and 4137 (Tax on Tips).
Schedule 3
Schedule 3, Additional Credits and Payments, reports nonrefundable credits, such as the Foreign Tax Credit, child and dependent care expenses, retirement savings contributions, and other payments and refundable credits, such as net Premium Tax Credit, excess Social Security withheld, and federal tax on fuels.
Data is entered on such credit or tax screens as 5 (Taxes, Credits, and Payments), 1116 (Foreign Tax Credit), DIV (1099-DIV, Dividend Income), INT (1099-INT, Interest Income), 8801 (Credit for Prior-Year AMT), 8962 (Premium Tax Credit), 8396 (Mortgage Interest Credit), K1P (Partnership K-1), K1S (S Corp. K-1), and K1F (Fiduciary K-1).
If there is no additional income reported on Schedule 1 but there are adjustments to income, only page 2 of Schedule 1 is produced in View/Print mode.