Form 1040 Schedule 1 (2020): Additional Income &
Adjustments
Schedule 1 for tax year 2020 reports supplemental income and income adjustments that do not appear on the main Form 1040. The 2020 version had special rules for pandemic relief, such as the temporary $300 above-the-line charitable deduction for people who don't itemize and the special treatment of unemployment benefits under the American Rescue Plan Act of 2021.
Understanding the 2020 Schedule 1 Structure
Schedule 1 consists of two main parts that serve different purposes on your tax return. Part I captures additional income sources such as unemployment compensation, business income, and taxable state tax refunds. Part II lists adjustments to income, including educator expenses, health savings account deductions, and IRA contributions that reduce your adjusted gross income before calculating your tax liability.
Step-by-Step Filing Instructions
Step 1: Report State and Local Tax Refunds on Line 1
Enter any taxable refunds, credits, or offsets of state or local income taxes on Schedule 1, Line
1. These amounts are only taxable if you itemized deductions in the prior year and received a tax benefit from the state tax deduction. Non-itemizers who took the standard deduction do not report state tax refunds as income.
Step 2: Enter Business Income or Loss on Line 3
Report net profit or loss from Schedule C for sole proprietorships on Schedule 1, Line 3. The
2020 instructions provided expanded guidance on pandemic-related business deductions, including Paycheck Protection Program loan forgiveness. Attach Schedule C to your return and provide complete business identifying information for each operation you own.
Step 3: Report Other Gains or Losses on Line 4
Enter gains or losses from business property sales using Form 4797 on Schedule 1, Line 4.
This line is for business property transactions, not typical investment capital gains from stocks or bonds. Most individual capital gains from Schedule D are reported directly on Form 1040, Line
7, rather than flowing through Schedule 1.
Step 4: Include Rental and Partnership Income on Line 5
Report rental real estate income, royalties, partnerships, S corporations, and trust income on
Schedule 1, Line 5. Attach Schedule E to document all sources of supplemental income from these activities. The 2020 instructions clarified reporting requirements for passive activity losses and the $25,000 special allowance for active real estate participation.
Step 5: Record Unemployment Compensation on Line 7
Enter total unemployment compensation received in 2020 on Schedule 1, Line 7, as shown on
Form 1099-G. Under the American Rescue Plan Act, up to $10,200 of unemployment benefits per taxpayer was excluded from income if the modified adjusted gross income was less than
$150,000. The exclusion amount is reported separately on Schedule 1, Line 8, as a negative adjustment.
Step 6: List Other Income on Line 8
Report any additional income not covered by other lines on Schedule 1, Line 8, including prizes, awards, jury duty pay, and Alaska Permanent Fund dividends. Clearly identify the source and amount of each income type. Attach supporting documentation, such as Form 1099-MISC or other statements, for each entry you make on this line.
Step 7: Claim Educator Expenses on Line 10
Deduct up to $250 of unreimbursed educator expenses on Schedule 1, Line 10, if you were a qualified K-12 teacher, instructor, or aide. For 2020, qualifying expenses expanded to include personal protective equipment, disinfectants, and supplies used to prevent the spread of coronavirus. Both spouses who are educators can each claim up to $250 on a joint return.
Step 8: Enter Health Savings Account Deduction on Line 12
Report your health savings account deduction on Schedule 1, Line 12, not charitable contributions or qualified charitable distributions. Qualified charitable distributions from IRAs are reported on Form 1040, lines 4a and 4b, with a “QCD” notation next to line 4b. The $300 above-the-line charitable deduction for non-itemizers is claimed on Form 1040, line 10b, not on
Schedule 1.
Step 9: Deduct IRA Contributions on Line 19
Enter your deductible IRA contributions on Schedule 1, Line 19, up to annual contribution limits.
For 2020, the age restriction for traditional IRA contributions was eliminated, allowing taxpayers age 70½ and older to make deductible contributions. Contribution limits and phase-out thresholds based on modified adjusted gross income and retirement plan coverage still apply.
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Step 10: Claim Student Loan Interest on Line 20
Report student loan interest deduction up to $2,500 on Schedule 1, Line 20, if your modified adjusted gross income falls below phase-out limits. This deduction is available even if you do not itemize deductions on Schedule A. The $10,200 unemployment compensation exclusion affects the calculation of modified adjusted gross income for determining eligibility for this deduction.
Reconciling Economic Impact Payments
The Recovery Rebate Credit for reconciling first and second Economic Impact Payments is claimed on Form 1040, Line 30, not on Schedule 1. Taxpayers use the Recovery Rebate Credit
Worksheet in the Form 1040 instructions to calculate any additional credit owed based on 2020 income and family size. Keep IRS Notice 1444 and Notice 1444-B with your tax records for reference when completing the worksheet.
Key 2020 Tax Year Provisions
The American Rescue Plan Act excluded up to $10,200 of unemployment benefits per taxpayer from gross income for those with modified adjusted gross income below $150,000. The exclusion applied separately to each spouse on married filing jointly returns, allowing up to
$20,400 total exclusion per couple who both received unemployment benefits during 2020.
The CARES Act allowed taxpayers who take the standard deduction to claim up to $300 in cash contributions to charity as an above-the-line deduction. This provision was available for both the
2020 and 2021 tax years before expiring, with the 2021 limit increased to $600 for married joint filers.
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