Form 1040 Schedule 1: Additional Income and Adjustments to Income (2023)
What the Form Is For
Schedule 1 is an attachment to your main tax return (Form 1040 or 1040-SR) that handles two important categories the main form doesn't have room for: additional sources of income and adjustments that reduce your taxable income. Think of it as an extension page where you report money you earned from sources beyond your regular wages and claim deductions that lower your adjusted gross income before you even get to the standard or itemized deduction.
The form has two parts. Part I captures additional income such as unemployment benefits, self-employment earnings, rental property income, gambling winnings, jury duty pay, prizes, alimony you received (under older divorce agreements), and business income. Part II lists adjustments to income—commonly called "above-the-line deductions"—including educator expenses, student loan interest, contributions to retirement accounts for the self-employed, health savings account contributions, IRA contributions, and the deductible portion of self-employment tax. These adjustments are valuable because they reduce your adjusted gross income, which can make you eligible for other tax benefits and lower your overall tax bill.
Not everyone needs Schedule 1. If your only income is from wages reported on a W-2 and you're taking the standard deduction without any special adjustments, you can file Form 1040 alone. However, if you have any income beyond your paycheck or qualify for common deductions like student loan interest or educator expenses, you'll need to complete this schedule and attach it to your return.
When You'd Use It (Including Late or Amended Returns)
You must file Schedule 1 if you have any additional income or adjustments to report that don't fit directly on Form 1040. Common situations include receiving unemployment compensation, earning money from a side business or freelance work, collecting rental income, winning money gambling, receiving alimony under a pre-2019 divorce agreement, or having farm income. On the adjustment side, you'll need Schedule 1 if you paid student loan interest, contributed to an IRA or health savings account, qualify for educator expenses, are self-employed and need to deduct health insurance premiums or half your self-employment tax, or made contributions to certain retirement plans.
The regular filing deadline for 2023 tax returns is April 15, 2024 (April 17 for residents of Maine and Massachusetts due to state holidays). If you miss this deadline and owe taxes, you'll face penalties and interest. The failure-to-file penalty is typically five percent of unpaid taxes for each month your return is late, up to a maximum of twenty-five percent. The failure-to-pay penalty adds another half percent per month. These penalties run simultaneously but are adjusted so you don't pay more than twenty-five percent total. Interest accrues on unpaid taxes from the original due date until you pay in full.
If you discover an error after filing—perhaps you forgot to report unemployment income on Schedule 1 or overlooked a student loan interest deduction—you can file an amended return using Form 1040-X. When amending, you must attach all necessary schedules, including a corrected Schedule 1, even if you're only changing one line. You have three years from the date you filed your original return or two years from when you paid the tax, whichever is later, to file an amended return and claim a refund. Amended returns typically take eight to twelve weeks to process, though some cases take up to sixteen weeks. You can check your amended return status on the IRS website after three weeks.
Key Rules
Several important rules govern Schedule 1. First, the income you report must be taxable. While you report the gross amounts in Part I, certain types of income have special rules. For example, if you received a state tax refund, it's only taxable if you itemized deductions in the prior year and got a tax benefit from deducting state taxes. The IRS provides a worksheet to calculate the taxable portion. Unemployment compensation reported on Form 1099-G is fully taxable and must be included. Alimony is only taxable if your divorce or separation agreement was executed on or before December 31, 2018—agreements after that date are not taxable to the recipient or deductible for the payer.
For adjustments in Part II, eligibility requirements apply. The educator expense deduction is limited to three hundred dollars per qualifying educator (six hundred dollars if married filing jointly and both spouses are educators), and you must work at least nine hundred hours during the school year in a school setting from kindergarten through grade twelve. Student loan interest is capped at twenty-five hundred dollars, and the deduction phases out for higher-income taxpayers. For married couples filing separately, neither spouse can claim this deduction if one spouse does.
The self-employed health insurance deduction cannot exceed your net self-employment income, and you can't claim it if you were eligible for employer-sponsored coverage through your job or your spouse's job. IRA deductions depend on whether you or your spouse are covered by a retirement plan at work and your income level—the IRS provides detailed worksheets in the instructions. You must have earned income to contribute to an IRA, and contribution limits apply (seven thousand dollars for 2023, with an additional one thousand dollars if you're age fifty or older).
Documentation is critical. Keep Forms 1099-G for unemployment, 1099-MISC or 1099-NEC for self-employment income, 1099-INT showing early withdrawal penalties, Schedule C for business income, Schedule E for rental income, and receipts or statements for all adjustments you claim. The IRS can request proof during an audit, which can happen up to three years after filing.
Step-by-Step (High Level)
Completing Schedule 1 follows a logical sequence. Begin by gathering all relevant tax documents: Forms 1099 for various types of income, Schedule C if you have business income, Schedule E for rental property income, Schedule F for farm income, and documentation for any adjustments you plan to claim such as Form 1098-E for student loan interest or receipts for educator expenses.
Start with Part I, Additional Income. Work through lines one through nine, entering each type of income that applies to you. Line 1 is for taxable state and local income tax refunds—use the worksheet in the instructions if you itemized last year. Line 2a is for alimony received under pre-2019 agreements. Lines 3 through 6 cover business income, other gains or losses, rental income, and farm income, which come from other schedules you'll prepare first. Line 7 is straightforward: enter your unemployment compensation from Form 1099-G. Lines 8a through 8z capture various other income types—gambling winnings, prizes, jury duty pay, hobby income, and many others. Add everything up and enter the total on line 10. This amount flows to line 8 of your Form 1040.
Move to Part II, Adjustments to Income. Review lines 11 through 26 and complete the ones that apply to your situation. Common adjustments include educator expenses (line 11), health savings account deductions (line 13), the deductible part of self-employment tax from Schedule SE (line 15), self-employed retirement plan contributions (line 16), self-employed health insurance (line 17), penalty on early withdrawal of savings (line 18), alimony paid under pre-2019 agreements (line 19a), IRA deductions (line 20), and student loan interest (line 21). Several adjustments require worksheets found in the instructions—follow them carefully to ensure you calculate the correct amount. Lines 24a through 24z handle less common adjustments. Add all adjustments and enter the total on line 26. This amount goes to line 10 of Form 1040, reducing your adjusted gross income.
Finally, attach the completed Schedule 1 to your Form 1040 or 1040-SR. If filing electronically, your tax software will handle this automatically. If filing by paper, place Schedule 1 directly behind Form 1040 in sequence order. Double-check that the amounts on Schedule 1 line 10 and line 26 match what you entered on Form 1040 lines 8 and 10 respectively. Sign and date your return, then file by the deadline.
Common Mistakes and How to Avoid Them
One of the most frequent errors is forgetting to file Schedule 1 when it's required. If you have unemployment income, self-employment earnings, or rental property income but don't attach Schedule 1, the IRS's computers will notice the missing income when they match your return against information returns from employers and financial institutions. This triggers correspondence and potential penalties. The fix: carefully review all your tax documents before filing and use tax software, which prompts you for the information needed.
Another common mistake is reporting the wrong amount for state tax refunds. Not all state refunds are taxable—only the portion for which you received a tax benefit by itemizing is taxable. If you took the standard deduction last year, your state refund isn't taxable at all. Use the State and Local Income Tax Refund Worksheet in the IRS instructions to calculate the correct amount. Simply copying the amount from Form 1099-G without doing the worksheet often results in overpaying your taxes.
Many taxpayers overlook legitimate adjustments they're entitled to claim. If you paid student loan interest, made IRA contributions, or qualify as an educator who spent your own money on classroom supplies, don't leave money on the table. Review all the adjustments in Part II even if you don't receive a form prompting you. For educator expenses, keep detailed records and receipts; for student loan interest, obtain Form 1098-E from your lender; for IRA contributions, keep statements from your financial institution.
Mathematical errors plague paper returns. Adding lines incorrectly or transposing numbers happens easily when calculating totals. Filing electronically virtually eliminates math errors because the software does the calculations. If you must file by paper, use a calculator and double-check every addition and subtraction.
Reporting alimony incorrectly is another pitfall. The rules changed dramatically in 2019. If your divorce or separation agreement was executed after December 31, 2018, alimony is not taxable to the recipient and not deductible for the payer—meaning neither party reports it on Schedule 1. Only agreements from December 31, 2018, or earlier follow the old rules where the recipient includes it as income and the payer deducts it. Check your divorce decree carefully and enter the date on the required line.
For self-employed individuals, errors often occur in calculating the deductible portion of self-employment tax or determining the self-employed health insurance deduction. These calculations depend on numbers from other forms and worksheets. Follow the instructions step-by-step or use Form 7206 for the health insurance deduction. Don't guess or estimate—use the actual figures from Schedule SE and your health insurance premium statements.
What Happens After You File
Once you file your return with Schedule 1 attached, the IRS processes it and performs automated checks. They match the income you reported against information returns from employers, banks, government agencies, and other sources. If your Schedule 1 income matches what they received, processing continues smoothly. Any discrepancies trigger correspondence asking you to explain differences or provide documentation.
The additional income from Schedule 1 line 10 adds to your total income, while the adjustments from line 26 reduce your income to arrive at your adjusted gross income. This adjusted gross income is the foundation for calculating your taxable income after subtracting either the standard deduction or itemized deductions. A higher adjusted gross income can affect your eligibility for various credits and phase-outs, while claiming more adjustments lowers it and potentially qualifies you for more tax benefits.
If you're due a refund, the IRS typically issues it within twenty-one days for electronically filed returns with direct deposit. Paper returns take longer—six to eight weeks or more during busy filing season. You can track your refund status using the "Where's My Refund?" tool on IRS.gov or through the IRS2Go mobile app, available twenty-four hours after the IRS receives your e-filed return or four weeks after mailing a paper return.
If you owe additional tax, payment is due by the filing deadline regardless of whether you file on time or request an extension. An extension to file is not an extension to pay. Interest accrues on unpaid balances from the due date until paid, and late payment penalties apply. You can pay electronically through IRS.gov, by phone, or by mailing a check with Form 1040-V.
Keep copies of your return, Schedule 1, and all supporting documentation for at least three years. The IRS generally has three years from the filing date to audit your return, though this period extends to six years if you understated income by more than twenty-five percent. If the IRS selects your return for examination, they may request proof of income and deductions reported on Schedule 1, so maintaining good records is essential.
If you later discover an error or omission on Schedule 1—perhaps you forgot to report some freelance income or didn't claim an IRA deduction you were entitled to—file an amended return using Form 1040-X. Attach a corrected Schedule 1 showing the changes. If the amendment results in additional tax owed, include payment to minimize interest and penalties. If it results in a refund, the IRS will process it, though amended returns take longer than original returns.
FAQs
Do I need Schedule 1 if I only have W-2 income?
Most taxpayers with only W-2 wages and no adjustments don't need Schedule 1. However, if you have adjustments to claim—such as educator expenses, student loan interest, IRA contributions, or health savings account deductions—you must file Schedule 1 even if you don't have additional income. The schedule handles both additional income and adjustments, and you can complete Part II without having anything in Part I.
Is unemployment compensation always taxable?
Yes, unemployment benefits are fully taxable at the federal level and must be reported on Schedule 1, line 7. You should receive Form 1099-G from your state showing the amount paid. Some states offer to withhold federal taxes from unemployment payments—if you declined withholding, remember you may owe tax when you file. Unlike some COVID-era provisions that excluded a portion of unemployment compensation, no such exclusion applies for 2023.
Can I deduct student loan interest if my parents paid it?
Generally no, unless you're legally obligated to repay the loan. To claim the student loan interest deduction, the loan must be in your name, you must be legally obligated to pay it, and you must have actually paid the interest during the tax year. If your parents paid interest on a loan they took out, they can't deduct it because it wasn't for their own education. If they paid interest on a loan in your name, you can deduct it only if you're legally required to repay the loan and meet all other requirements.
What's the difference between adjustments on Schedule 1 and itemized deductions on Schedule A?
Adjustments to income on Schedule 1 (sometimes called "above-the-line" deductions) reduce your adjusted gross income before you claim either the standard deduction or itemized deductions. This makes them more valuable than itemized deductions because you can claim them regardless of whether you itemize, and a lower adjusted gross income can qualify you for other tax benefits with income limitations. Itemized deductions on Schedule A only benefit you if their total exceeds the standard deduction, and they come into play after adjusted gross income is calculated.
If I'm self-employed, which Schedule 1 deductions can I claim?
Self-employed individuals can claim several valuable adjustments. Line 15 lets you deduct half of your self-employment tax, which helps offset the fact that you pay both the employer and employee portions of Social Security and Medicare taxes. Line 16 covers contributions to self-employed retirement plans like SEP-IRAs or solo 401(k)s. Line 17 allows you to deduct health insurance premiums you paid for yourself, your spouse, and dependents if you weren't eligible for an employer plan. These deductions can significantly reduce your tax burden and are available even if you take the standard deduction.
What happens if I forget to include income on Schedule 1?
If you omit income, you'll likely receive a notice from the IRS. Their computers match information returns against your tax return, and missing income triggers automated correspondence. You'll need to file an amended return using Form 1040-X with a corrected Schedule 1, pay any additional tax due, and potentially pay interest and penalties. The penalties depend on whether the IRS believes the omission was inadvertent or intentional. Filing the amendment voluntarily before the IRS contacts you demonstrates good faith and may reduce penalties.
Are gambling winnings and losses both reported on Schedule 1?
Gambling winnings go on Schedule 1, line 8b, and you must report the full amount of winnings for the year. Gambling losses, however, don't go on Schedule 1 at all. If you itemize deductions, you can deduct gambling losses up to the amount of your winnings on Schedule A, line 16. You can't deduct losses exceeding your winnings, and you can't deduct gambling losses at all if you take the standard deduction. Keep careful records of both winnings and losses, including receipts, tickets, statements, and a diary of gambling activity.
Source: IRS.gov
Source: IRS.gov Schedule 1 Form
