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What this notice is about
Our records show you claimed the Schedule 1-A qualified tips and qualified overtime compensation deductions. Our initial review of your 2025 Form 1040 federal tax return suggests that you may have claimed too much of a deduction for qualified tips and for qualified overtime compensation on Schedule 1-A. You must ensure you qualify for all deductions and the amounts you claim.
If you made an error in your Schedule 1-A deductions, you may need to amend your return. This notice has been sent to inform you of this potential discrepancy and to help you verify if you claimed this deduction correctly. For more information on how to correctly claim these deductions, see the instructions for Schedule 1-A, found starting on page 101 of the 2025 Form 1040 Instructions PDF.
You may want to
Review your 2025 Form 1040 and make sure you correctly claimed all deductions. If you made an error:
- File an amended return. If you filed electronically, you may file your amended return electronically. You can get help at an IRS Taxpayer Assistance Center.
- Share this letter with anyone helping you with preparing your returns.
- If you file an amended federal tax return, you may also need to file an amended state or local tax return.
Failure to review and address any incorrect or incomplete information could result in additional communication from the IRS.
Frequently asked questions
For tax years 2025-2028, under Working Families Tax Cuts, taxpayers may be eligible for a new deduction if they received qualified tips. For tipped workers, the maximum annual deduction is $25,000, which phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
An eligible individual may deduct qualified cash tips if you have tip income from specific occupations that customarily and regularly receive tips. Workers can take the deduction only for qualified tips that are included in the amounts reported in box 1 of Form W-2 or Form 1099-NEC, in box 3 of Form 1099-MISC, in box 1a of Form 1099-K, or reported by the employee on Form 4137.
Under Working Families Tax Cuts, if you receive qualified overtime compensation, you may be able to deduct it. For 2025, employers aren’t required to report qualified overtime compensation separately on Forms W-2, 1099-NEC, and 1099-MISC. If you don’t receive a statement reporting the amount of qualified overtime compensation, use the 2025 Schedule 1-A Instructions to determine the deduction.
Workers with qualified overtime compensation. Qualified overtime compensation is overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act (FLSA) (29 USC § 207) that exceeds the regular rate at which the individual is employed. For example, if an individual is paid at “one and one-half times” their regular rate for an hour of overtime work as required by the FLSA, the “half” portion of the “one and one-half times” paid for an hour of overtime work is qualified overtime compensation.
Helpful information
Follow the links below to read more about topics related to the qualified tips and other new provisions:
- Working Families Tax Cuts – Individuals and workers
- IRS published schedule taxpayers will use to claim deductions on no tax on tips, no tax on overtime, no tax on car loans, no tax on seniors
- One, Big, Beautiful Bill: How to take advantage of no tax on tips and overtime
- Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025
- IRS updates FAQs on qualified overtime deduction
- What to know about the No Tax on Overtime deduction
- Questions and answers about the new deduction for qualified overtime compensation
- Treasury, IRS provide guidance on the new deduction for car loan interest under the One, Big, Beautiful Bill
Follow the links below to read more about filing an amended return or making a payment: