How to Report Additional Income and SALT Refunds on Schedule 1

As of July 25, 2025, important updates have been made to how taxpayers in the United States 🇺🇸 must report Additional Income on their federal tax returns. These changes affect anyone who receives income from sources other than regular wages or salaries, including those who get refunds of state and local taxes (often called SALT refunds). The Internal Revenue Service (IRS) has released the latest version of Schedule 1 (Form 1040) for the 2024 tax year, which must be filed in 2025. This update explains what has changed, who is affected, what actions are required, and what these changes mean for people with pending or future tax filings.

Summary of What Changed

The IRS has not made major structural changes to Schedule 1 for the 2024 tax year, but it has clarified several reporting requirements. The most important updates relate to:

• How to report Additional Income from various sources using Schedule 1.
• The ongoing $10,000 cap on the SALT deduction for state and local taxes.
• When and how to report a SALT refund as additional income.
• Updated guidance on reporting digital assets and canceled debts.

These updates are designed to help taxpayers avoid mistakes, reduce the risk of IRS penalties, and ensure that all income is reported correctly.

Who Is Affected by These Changes?

The following groups are most affected by the 2024-2025 updates:

• Taxpayers with income beyond wages or salaries: This includes people who receive alimony (from agreements before 2019), business or farm income, rental income, unemployment compensation, gambling winnings, jury duty pay, prizes, awards, or canceled debts.
• Anyone who itemized deductions and claimed a SALT deduction: If you received a refund of state or local income taxes, you may need to report it as additional income.
• People with complex tax situations: Those with income from partnerships, S corporations, trusts, or digital assets must pay close attention to the new instructions.
• Tax preparers and software users: Professionals and individuals using tax software must ensure they are following the latest IRS guidance.

Effective Dates

• The updated Schedule 1 and related instructions apply to the 2024 tax year (returns filed in 2025).
• The $10,000 SALT deduction cap remains in place for both 2024 and 2025.
• All changes are effective for tax returns due in April 2025.

Required Actions for Taxpayers

To comply with the latest IRS requirements, taxpayers should take the following steps:

1. Review Your Income Sources
   • Gather all documents showing income not reported on your main Form 1040. This includes Forms 1099, K-1s, 1099-G (for unemployment or state tax refunds), and any other records of additional income.
2. Understand What Counts as Additional Income
   • Schedule 1, Part I is used to report:
     • Taxable refunds, credits, or offsets of state and local income taxes (SALT refunds)
     • Alimony received (from pre-2019 agreements)
     • Business income or loss (reported on Schedule C)
     • Gains or losses from sales of business or farm assets (Form 4797)
     • Rental real estate, royalties, partnerships, S corporations, trusts (Schedule E)
     • Farm income or loss (Schedule F)
     • Unemployment compensation (Form 1099-G)
     • Other income types not reported elsewhere, such as gambling winnings, jury duty pay, prizes, awards, canceled debts, and miscellaneous income.
3. Determine If Your SALT Refund Is Taxable
   • If you itemized deductions and claimed a SALT deduction in the previous year, you may need to report any refund as additional income.
   • However, if the refund did not give you a tax benefit (for example, because of the $10,000 SALT cap or because you did not itemize), the refund is not taxable and does not need to be reported.

   Example:

   • Suppose you paid $7,000 in state and local income taxes in 2021 and claimed the maximum $10,000 SALT deduction. In 2022, you receive a $750 refund, meaning your actual state tax liability was $6,250. Since your deduction was already limited to $10,000, the refund did not increase your tax benefit. Therefore, you do not need to report the refund as additional income on your 2022 return.

   Tip: If you did not itemize deductions or chose to deduct state and local sales taxes instead of income taxes, your refund is not taxable.

1. Fill Out the Correct Forms and Schedules

   • Use the latest version of Schedule 1 (Form 1040) for reporting additional income.
   • Attach all relevant schedules (C, E, F) if you have business, rental, or farm income.
   • For other income (such as gambling winnings or canceled debts), report the amount on Schedule 1, Line 8, and attach a statement describing the income type and amount.
2. Attach Schedule 1 to Your Form 1040
   • When you file your tax return, make sure to include Schedule 1 and any other required schedules.
   • Keep detailed records and supporting documents for all additional income reported.

Implications for Pending and Future Applications

If you have already filed your 2024 tax return or have a pending application that involves reporting additional income, you should:

• Double-check your return to ensure all additional income is reported correctly according to the latest IRS guidance.
• Amend your return if you discover errors or omissions. Use Form 1040-X to file an amended return.
• Monitor for IRS notices: If the IRS finds unreported additional income, you may receive a notice, and you could face penalties and interest.
• Consult a tax professional if you are unsure about how to report certain types of income or refunds.

Detailed Guidance on Key Topics

1. Additional Income Reporting on Schedule 1

Schedule 1 is used to report income that does not fit on the main Form 1040. This includes:

• Taxable refunds of state and local income taxes (SALT refunds)
• Alimony received (for divorce agreements finalized before 2019)
• Business income or loss (Schedule C)
• Rental income, royalties, partnerships, S corporations, trusts (Schedule E)
• Farm income or loss (Schedule F)
• Unemployment compensation (Form 1099-G)
• Other income (Line 8), such as:
  • Gambling winnings
  • Jury duty pay
  • Prizes and awards
  • Canceled debts
  • Miscellaneous income

2. SALT Refunds and the $10,000 Deduction Cap

The SALT deduction allows taxpayers who itemize to deduct up to $10,000 ($5,000 if married filing separately) of state and local taxes paid. If you receive a refund of these taxes, you must determine if it is taxable:

• Taxable: If the refund gave you a tax benefit in the prior year (for example, you deducted the full amount and the refund increased your benefit), you must report it as additional income.
• Not Taxable: If the refund did not increase your tax benefit (because of the SALT cap or because you did not itemize), you do not need to report it.

3. Other Income Types (Schedule 1, Line 8)

Income that does not fit into other categories is reported here. Examples include:

• Jury duty pay
• Prizes and awards
• Gambling winnings
• Canceled debts (if you were solvent when the debt was canceled)
• Miscellaneous income

You must attach a statement to your return describing the type and amount of each income item reported on Line 8.

4. Digital Assets and Updated Forms

The IRS has clarified how to report income from digital assets (such as cryptocurrencies) and updated forms like 1099-K for reporting certain payments. Taxpayers should review the latest instructions to ensure compliance.

5. Penalties for Incorrect Reporting

Failing to report additional income can result in:

• IRS notices
• Penalties
• Interest charges

To avoid these problems, always use the latest forms and instructions, and keep thorough records.

Practical Steps for Taxpayers

Here is a step-by-step checklist to help you report additional income correctly:

• Gather all income documents: Collect Forms 1099, K-1s, 1099-G, and any other records.
• Identify income types: Sort your income into categories (business, rental, farm, other).
• Complete relevant schedules: Fill out Schedule C, E, or F as needed.
• Report taxable SALT refunds on Schedule 1, Line 1.
• Report other additional income on Schedule 1, Lines 2-8, following IRS instructions.
• Attach Schedule 1 to Form 1040 when filing.
• Keep detailed records and supporting documentation for all additional income reported.

Background and Historical Context

• Schedule 1 was created to make Form 1040 simpler by moving additional income and adjustments off the main form.
• The SALT deduction cap was introduced by the Tax Cuts and Jobs Act of 2017 and remains unchanged through 2025.
• The rules for reporting state tax refunds as income are based on the “tax benefit rule,” which has been clarified by the IRS and courts over the years.

Future Outlook

• No changes to Schedule 1 or the SALT deduction cap are expected for the 2025 tax year.
• The IRS is watching digital asset reporting closely and may update forms and instructions in the future.
• Congress could change the rules, but as of mid-2025, no new laws have been passed.

Official Resources and Where to Get Help

• The IRS is the best source for up-to-date forms and instructions. You can find the latest Schedule 1 (Form 1040) and instructions here.
• For more details on taxable and nontaxable income, see IRS Publication 525.
• If you need help, call the IRS Taxpayer Assistance line at 1-800-829-1040 or the Taxpayer Advocate Service at 1-877-777-4778.

Key Takeaways and Next Steps

• Always use the latest IRS forms and instructions when reporting additional income.
• Check if your SALT refund is taxable by reviewing whether you itemized deductions and the effect of the SALT cap.
• Report all additional income accurately on Schedule 1 and attach it to your Form 1040.
• Keep good records in case the IRS asks for proof.
• Consult a tax professional if you have questions or complex income sources.

As reported by VisaVerge.com, careful attention to these updated rules will help taxpayers avoid costly mistakes and ensure compliance with federal tax laws. For more information and to access the latest forms, visit the official IRS Schedule 1 page.

By following these steps, taxpayers can confidently report additional income, handle SALT refunds correctly, and reduce the risk of IRS problems during the 2025 tax season and beyond.

Learn Today

Schedule 1 (Form 1040) → IRS form used to report additional income and adjustments not shown on main tax form.
SALT deduction → Limits state and local tax deductions to $10,000 max for itemized tax returns.
SALT refund → Refund of state or local income taxes that may be taxable if prior deduction yielded benefit.
Additional Income → Income from sources beyond wages or salaries, like business, rental, gambling, or cancelled debts.
Form 1099-G → IRS form reporting certain government payments, including unemployment and state tax refunds.

This Article in a Nutshell

The IRS updated Schedule 1 for 2024, clarifying how taxpayers report additional income and SALT refunds. Taxpayers with complex income sources must use updated forms by April 2025, helping avoid errors and penalties while complying with federal tax laws effectively.
— By VisaVerge.com