Form 1040 Schedule 1: Additional Income and Adjustments

Schedule 1 of Form 1040 is the attachment where you report income that doesn’t fit on the main tax return and claim deductions that lower your income before tax is calculated. Part I captures additional income: self-employment profits, rental income, unemployment compensation, gambling winnings, digital asset income, and more. Part II captures above-the-line deductions such as HSA contributions, student loan interest, and half of self-employment tax. The two totals flow onto Form 1040 and adjust the two most important numbers on your return: total income and adjusted gross income.

Do You Need To File Schedule 1

Not every taxpayer needs it. If your income is entirely W-2 wages, bank interest, and dividends, and you have no above-the-line deductions to claim, you can skip Schedule 1 altogether.¹

You need Schedule 1 if any of the following apply:

You have business profits, rental income, royalties, or partnership or S corporation income.
You received unemployment compensation.
You had gambling winnings, prizes, jury duty pay, cancellation of debt income, or digital asset income from mining, staking, airdrops, or payment for services.
You paid student loan interest, contributed to an HSA or traditional IRA, or paid self-employment tax.
You are an eligible educator, an active-duty service member who moved, or a self-employed person paying health insurance premiums.

Tax software generates Schedule 1 automatically when your entries trigger it. If you file on paper, attach the completed Schedule 1 to your Form 1040.

Part I: Additional Income

Part I collects income that has no dedicated line on Form 1040 itself.

Self-Employment, Rental, and Pass-Through Income

Self-employment is one of the most common triggers. You compute net profit or loss on Schedule C, then carry the result to Schedule 1, line 3.² Rental real estate income, royalties, and your share of partnership, S corporation, and trust income are calculated on Schedule E and reported on Schedule 1, line 5.³

Unemployment Compensation

Unemployment benefits are taxable at the federal level and go on line 7. Your state workforce agency issues Form 1099-G showing the total paid. Taxes are not withheld unless you specifically requested it, which catches many recipients off guard at filing.³

Alimony From Pre-2019 Agreements

Alimony you receive under a divorce or separation agreement finalized before January 1, 2019, is reported in Part I. Agreements executed after December 31, 2018, work differently: the recipient does not include alimony in income, and the payer cannot deduct it. If you modified a pre-2019 agreement and the modification specifically states that the new rules apply, the alimony becomes non-taxable.⁴

Gambling Winnings, Prizes, and Other Income

Line 8 is the catch-all, with more than a dozen sub-lines. The ones most people encounter are gambling winnings (8b), cancellation of debt income (8c), jury duty pay (8h), and prizes and awards (8i).³ All gambling income is taxable whether or not the payer issued a W-2G. The reporting threshold governs when the payer must issue a form; it does not govern your obligation to report the income.

Digital Asset Income

Digital assets received as ordinary income through mining, staking, airdrops, or as payment for goods and services go on line 8v.³ Capital gains from selling or exchanging digital assets are reported separately on Schedule D, not here.

Every taxpayer also answers a yes-or-no digital asset question on the front of Form 1040. Buying crypto with dollars and holding it does not require a “Yes.” Nearly any other transaction does. The IRS treats digital assets as property, so you need to track purchase price, transaction dates, and fair market value in U.S. dollars at the time of each transaction.⁵

Every entry in Part I is totaled on line 10 and moves to Form 1040, line 8.⁶

Part II: Adjustments to Income

Part II is where Schedule 1 gives something back. These deductions reduce your income before adjusted gross income is calculated. They are called above-the-line deductions because you can claim them whether you take the standard deduction or itemize.

Educator Expenses

Eligible teachers and other educators who work at least 900 hours per school year can deduct up to $350 in unreimbursed classroom expenses for tax year 2026, covering books, supplies, computer equipment, and professional development.⁷ If both spouses are eligible educators filing jointly, each can claim up to $350. The deduction is on line 11.³

HSA Contributions

If you have a high-deductible health plan, contributions to your HSA are deductible on line 13. For 2026, the limit is $4,400 for self-only coverage or $8,750 for family coverage, plus a $1,000 catch-up if you’re 55 or older.⁸ Complete Form 8889 and attach it to your return.⁹

Self-Employment Deductions

Self-employed taxpayers get three important adjustments. You can deduct half of your self-employment tax on line 15, offsetting the fact that you pay both the employee and employer shares of Social Security and Medicare.¹⁰ Health insurance premiums you paid for yourself, your spouse, and dependents go on line 17. Contributions to self-employed retirement plans such as a SEP-IRA, SIMPLE IRA, or solo 401(k) go on line 16.³ Together, these can substantially reduce taxable income for freelancers and small business owners.

Traditional IRA Contributions

Contributions to a traditional IRA go on line 20.¹¹ For 2026, the annual limit is $7,500, or $8,600 if you’re 50 or older.¹² Whether you can deduct the full amount, a partial amount, or nothing depends on your income and whether you or your spouse are covered by a retirement plan at work. If you’re single and covered by a workplace plan, the deduction phases out between $81,000 and $91,000 in modified AGI. For married couples filing jointly, the phaseout begins at $129,000.

Student Loan Interest

You can deduct up to $2,500 of student loan interest paid during the year on line 21.¹³ For 2026, the deduction phases out between $85,000 and $100,000 in modified AGI for single filers, and between $175,000 and $205,000 for joint filers.⁷ Your loan servicer sends Form 1098-E showing interest paid.

Military Moving Expenses

The moving expense deduction is currently limited to active-duty members of the Armed Forces and certain intelligence community employees who relocate due to a permanent change of station. Qualifying expenses include shipping household goods, storage, and travel to the new location, but not meals.¹⁴ Calculate the deduction on Form 3903 and report it on line 14. Civilian moves do not qualify.

Other Adjustments

A few smaller items round out Part II. Penalties your bank charged for breaking a CD early are deductible on line 18. Alimony payments under pre-2019 agreements are on line 19. Jury duty pay you had to turn over to your employer is backed out on line 24a.³

Everything in Part II is totaled on line 26 and moves to Form 1040, line 10.⁶

How the Numbers Flow Into Form 1040

Schedule 1 produces two numbers that plug directly into your main return. Line 10 of Schedule 1 (total additional income) goes to Form 1040, line 8, and is added to your wages, interest, and dividends to produce total income.⁶ Line 26 of Schedule 1 (total adjustments) goes to Form 1040, line 10, and is subtracted from total income to arrive at your adjusted gross income.³

AGI is arguably the most important number on your return. It determines whether you qualify for the earned income tax credit, how much of your child tax credit you receive, whether your traditional IRA contribution is deductible, and how large your premium tax credit is if you buy health insurance through the marketplace. Every dollar of Part II adjustment lowers AGI and can ripple through your return well beyond the face value of the deduction.

Records To Keep

Income and deductions on Schedule 1 tend to attract more scrutiny than W-2 wages because they are harder for the IRS to independently verify. Business income, rental profits, and gambling winnings depend on records you maintain rather than on forms an employer files.

Keep supporting records for three years from the date you filed. That window extends to six years if you omitted more than 25% of your gross income, and to seven years for a deduction claimed for worthless securities or bad debt. If you never filed a return, there is no time limit.¹⁵

For self-employment, keep invoices, bank statements, and receipts that support every number on Schedule C. For gambling, keep a log of wins and losses with dates and amounts. For HSA and student loan deductions, retain the year-end statements from your custodian or servicer.

What Happens If You Leave Income Off

Omitting income can result in an accuracy-related penalty of 20% of the resulting tax underpayment. The IRS applies this for negligence or substantial understatement, and specifically flags cases where income shown on an information return does not appear on your tax return.¹⁶

A substantial understatement exists when the tax you reported is off by the greater of 10% of the correct tax or $5,000. If you claimed a qualified business income deduction under Section 199A, the threshold drops to 5% of the correct tax or $5,000.¹⁶ You will also owe interest on the unpaid tax from the original due date. Cross-check every 1099 and W-2G you receive against what you report on Schedule 1 before you file.

1
Internal Revenue Service. About Form 1040, U.S. Individual Income Tax Return
2
Internal Revenue Service. Schedule C (Form 1040) – Profit or Loss From Business
3
Internal Revenue Service. Schedule 1 (Form 1040) – Additional Income and Adjustments to Income
4
Internal Revenue Service. Topic No. 452 – Alimony and Separate Maintenance
5
Internal Revenue Service. Digital Assets
6
Internal Revenue Service. Form 1040 – U.S. Individual Income Tax Return
7
Internal Revenue Service. Rev. Proc. 2025-32
8
Internal Revenue Service. Rev. Proc. 2025-19
9
Internal Revenue Service. Form 8889 – Health Savings Accounts (HSAs)
10
Internal Revenue Service. Schedule SE (Form 1040) – Self-Employment Tax
11
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements
12
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
13
Internal Revenue Service. Topic No. 456, Student Loan Interest Deduction
14
Internal Revenue Service. Topic No. 455, Moving Expenses for Members of the Armed Forces and the Intelligence Community
15
Internal Revenue Service. How Long Should I Keep Records?
16
Internal Revenue Service. Accuracy-Related Penalty