IRS 1040 Schedule 1 “Additional Income and Adjustments to Income” Explained

Schedule 1 (Form 1040), Additional Income and Adjustments to Income, reports types of income that don’t have their own line on Form 1040, along with the “above-the-line” deductions that reduce your adjusted gross income (AGI). Many taxpayers with only wages and a few common income types don’t need it.

Part I: Additional Income

Common items reported on Schedule 1, Part I include:

• Taxable refunds of state and local income taxes
• Alimony received (for divorce or separation agreements executed before 2019)
• Business income or loss from Schedule C
• Other gains or losses from Form 4797 (sales of business property)
• Rental real estate, royalties, partnerships, S corporations and trusts from Schedule E, including income from a Schedule K-1
• Farm income or loss from Schedule F
• Unemployment compensation
• Other income, such as gambling winnings, prizes, jury duty pay, canceled debt, and the Alaska Permanent Fund dividend

Capital gains are not on Schedule 1. Sales of stocks, funds and other investments are reported on Form 8949 and Schedule D, and the result goes directly to Form 1040.

Part II: Adjustments to Income

Adjustments reduce your income whether you itemize or take the standard deduction. Common examples:

• Educator expenses
• Health savings account (HSA) deduction
• Deductible part of self-employment tax
• Self-employed SEP, SIMPLE and qualified plan contributions
• Self-employed health insurance deduction
• Penalty on early withdrawal of savings
• Alimony paid (pre-2019 agreements)
• Traditional IRA deduction
• Student loan interest deduction

Where Other Items Go

Additional taxes, such as self-employment tax, the alternative minimum tax and additional tax on early retirement distributions, are reported on Schedule 2, not Schedule 1. Itemized deductions are on Schedule A, and interest and dividends over the reporting threshold go on Schedule B.

How Schedule 1 Flows to Your Return

The Part I total carries to Form 1040 as additional income, and the Part II total carries over as adjustments to income. Together they help determine your AGI, which affects many credits, deductions and phase-outs. Line numbers can change from year to year, so check the current Form 1040 instructions.

Get Help From Diehl CPA

Tax rules change often, and the right answer depends on your full financial picture. Diehl CPA, led by Mark Diehl, CPA, CFE, prepares returns and builds tax plans for investors, retirees and closely held businesses. Learn about our tax return preparation and investment tax planning services, or contact us to talk through your situation.

This article is general information, not tax or legal advice for your specific situation. Updated October 2026.