"2026" is ambiguous. Most people mean the 2025 tax-year return filed in the 2026 season, ordinarily due April 15, 2026. The final 2025 Schedule 1 was posted January 2, 2026. A 2026 draft exists, but draft forms are not for filing.
For Americans living in Australia, the extra wrinkles are exchange rates, superannuation, and foreign-income relief. This guide uses 2025 figures throughout.
Key Takeaways
- Schedule 1 reports additional income (Part I) and above-the-line adjustments (Part II).
- US citizens and green-card holders in Australia still report worldwide income.
- New deductions, including the senior deduction, go on separate Schedule 1-A.
- Complete supporting forms first, then transfer the totals to Form 1040.
What Is Form 1040 Schedule 1 and Who Needs to File It?
Schedule 1 is a supplement for income and adjustments that have no line on Form 1040 itself. It has two parts:
- Part I: additional income, lines 1-10. The line 10 total goes to Form 1040 line 8.
- Part II: adjustments to income, lines 11-26. The line 26 total goes to Form 1040 line 10.
You need it when at least one listed income category or adjustment applies to you. A return with only wages, interest and the standard deduction doesn't need it.
Living in Australia, holding Australian dollars, or receiving (or not receiving) a particular information return is not the trigger. Your actual income and deductions are.
Part I: Additional Income on Schedule 1
How Part I works
Identify the income, complete any supporting schedule, total the Part I lines, and carry the result to Form 1040. Report taxable income even if it was earned outside the US or no information form arrived. Exclusions, such as the foreign earned income exclusion, are applied afterwards on the form, not by leaving income out.
Common income categories
| Line | Category | Related form |
|---|---|---|
| 1 | Taxable state or local tax refunds | None |
| 2a | Alimony received (agreements executed by Dec 31, 2018) | None |
| 3 | Business income or loss | Schedule C |
| 4 | Other gains or losses | Form 4797 |
| 5 | Rental, royalty and pass-through income | Schedule E |
| 6 | Farm income or loss | Schedule F |
| 7 | Unemployment compensation | None |
| 8 | Other income | Varies |
Not every state refund is taxable, so check before including one.
Other income and information-reporting issues
Line 8 covers residual categories such as:
- Gambling winnings (8b)
- Prizes and awards (8i)
- Ordinary digital-asset income not reported elsewhere (8v)
Casual gambling winnings are fully taxable, including the fair market value of noncash prizes, even without a Form W-2G.
Mining and staking income may belong on line 8. Business receipts go on Schedule C, and investment sales go on Form 8949.
Missing or incorrect Forms 1099 don't cancel the duty to report. IRS guidance on Form 1099-K confirms taxable income must be reported even if you receive no form.
Superannuation warning: Pension and annuity receipts are not automatically Schedule 1 "other income." Form 1040 has separate pension lines (5a/5b). Treatment of Australian super depends on the fund's classification and the treaty, so confirm the correct treatment before filing.
Part II: Adjustments to Income on Schedule 1
How Part II reduces adjusted gross income
An above-the-line adjustment reduces AGI directly. Standard or itemised deductions come later, at Form 1040 line 12e. Lower AGI can open up other deductions and credits, which is why these adjustments matter beyond their face value.
Main adjustments to review
| Line | Adjustment | 2025 limit or condition |
|---|---|---|
| 11 | Educator expenses | $300 ($600 joint, max $300 each) |
| 13 | HSA deduction | $4,300 self-only, $8,550 family; +$1,000 age 55+ |
| 15 | Deductible self-employment tax | One-half of SE tax |
| 16 | SEP, SIMPLE, qualified plans | SEP: lesser of $70,000 or 25% of compensation; SIMPLE: $16,500 |
| 17 | Self-employed health insurance | Form 7206 limits apply |
| 18 | Early-withdrawal penalty | Amount on Form 1099-INT/OID |
| 19a | Alimony paid | Pre-2019 agreements |
| 20 | IRA deduction | $7,000 ($8,000 age 50+), subject to phaseouts |
| 21 | Student loan interest | $2,500 max; phaseout $85,000-$100,000 single |
Other lines cover reservist and performing-artist expenses (12), Armed Forces moving expenses (14), Archer MSAs (23), and other adjustments (24), including the foreign housing deduction at 24j.
Supporting forms and self-employed taxpayers
Self-employed taxpayers complete Schedule C and Schedule SE first. Schedule SE produces the deductible half of self-employment tax, which then lands on line 15.
Keep contribution statements, payment records and plan documents for HSA, retirement, IRA, student-loan and health-insurance items.
A framework for a self-employed filer:
- Start with Schedule C net profit
- Subtract the deductible SE tax
- Subtract the retirement contribution
- Subtract eligible health insurance
Each step reduces AGI. The health insurance deduction is capped by business income after the first two subtractions. Run the numbers using your own figures.
An IRA note for expats: income excluded under the FEIE is not IRA compensation.
Common Part II errors
- Claiming an adjustment without its required form (Form 8889 for HSAs, Form 7206 for health insurance)
- Exceeding a contribution or income limit
- Treating an itemised deduction as an above-the-line adjustment
- Deducting the same expense twice
Eligibility shifts with filing status, employer coverage, income level, and whether you claim another benefit for the same item. Married filing separately is ineligible for the student loan interest deduction.
How Schedule 1 Works for Taxpayers Living in Australia
Worldwide income and Australian-source amounts
US citizens and resident aliens abroad remain subject to US tax on worldwide income. That includes Australian wages, contracting income, rental income, investment income and business profits. Publication 54 covers the expatriate rules.
Report in US dollars. The IRS generally accepts the rate when income is received or an expense is paid, and it accepts consistently used posted rates.
Its 2025 yearly average is AUD 1.551 per USD 1, which you divide into AUD amounts. That average is not a rule to use for every transaction, so record the rate and source for each conversion.
Schedule 1 doesn't replace your Australian return, ATO reporting or payroll obligations. The ATO expects Australian tax residents to declare foreign income, subject to residency rules.
Foreign tax relief and expatriate forms
- FEIE (Form 2555): 2025 maximum $130,000; needs a foreign tax home and bona fide residence or 330 full days abroad in 12 months
- Report FEIE as a negative on Schedule 1 line 8d; put the housing deduction on line 24j
- Foreign tax credit (Form 1116): covers qualifying foreign income taxes; no credit for tax on FEIE-excluded income
- Pensions and super: pensions, annuities and superannuation are not foreign earned income
- Treaty Article 18 covers pensions, but the saving clause keeps US citizens taxable; residence-state wording alone is not an exemption
- Foreign trust reporting (Forms 3520/3520-A) depends on how the arrangement is classified
FBAR and Form 8938 are separate:
| Requirement | Threshold (abroad) |
|---|---|
| FBAR (FinCEN 114) | Foreign accounts exceed $10,000 at any time |
| Form 8938, single/MFS | $200,000 at year-end or $300,000 any time |
| Form 8938, MFJ | $400,000 at year-end or $600,000 any time |
Filing Schedule 1 satisfies neither.
Schedule 1 versus Schedule 1-A in the 2026 filing context
Schedule 1-A is a separate attachment for four deductions that the IRS describes as applying for 2025-2028. Its line 38 total goes to Form 1040 line 13b, not into the Schedule 1 adjustments.
| Deduction | Maximum | Phaseout begins (MAGI) |
|---|---|---|
| Qualified tips | $25,000 | $150,000 ($300,000 MFJ) |
| Qualified overtime | $12,500 ($25,000 MFJ) | $150,000 ($300,000 MFJ) |
| Vehicle-loan interest | $10,000 | $100,000 ($200,000 MFJ) |
| Enhanced senior deduction | $6,000 per eligible person | $75,000 ($150,000 MFJ), 6% reduction |
Eligibility rules to watch:
- Senior deduction: age 65 or older (born before 2 January 1961 for 2025), valid SSN, and a joint return if married
- Tips and overtime: valid employment SSN; married couples must file jointly
- Vehicle interest: new personal-use vehicle with US final assembly; leases do not qualify
The catch for expats: Schedule 1-A MAGI starts with AGI and adds back Form 2555 lines 45 and 50. Excluded foreign income therefore still counts toward the phaseouts.
For Australian-based retirees, living abroad doesn't by itself decide eligibility. Pension income, FEIE, foreign tax credits and the MAGI calculation should be reviewed together.
How to Complete and File Schedule 1 in 2026
Step-by-step preparation checklist
- Confirm the tax year and use that year's instructions.
- Gather documents: W-2s, 1099s, Australian payment summaries, exchange-rate records, business and rental records, retirement statements, and proof of foreign tax paid.
- Complete supporting forms first: Schedules C, E, F and SE, Forms 2555, 1116, 8889, 7206 and others.
- Enter Part I income and total it on line 10.
- Enter Part II adjustments and total them on line 26.
- Transfer the totals to Form 1040 lines 8 and 10.
- Attach Schedule 1 (and Schedule 1-A if applicable). Don't also mail an electronically filed return.
Common mistakes, deadlines, and professional review
Frequent errors:
- Using the wrong year's instructions
- Converting AUD inconsistently
- Omitting foreign income
- Misclassifying super or pension income
- Confusing Schedule 1 with Schedule 1-A
- Claiming FEIE and a foreign tax credit on the same income
Key 2026 dates for the 2025 return:
| Event | Date |
|---|---|
| Ordinary filing and payment deadline | April 15 |
| Automatic extension for taxpayers abroad | June 15 |
| Form 4868 extended filing deadline | October 15 |
The June 15 extension covers filing, but IRS extension guidance confirms interest on unpaid tax runs from April 15. Form 4868 extends time to file, not time to pay. Attach the required statement if you use the automatic abroad extension.
If you're a US business owner in Australia with self-employment income, a foreign business, or several reporting forms, a second pair of eyes helps. VJM Global provides Form 1040 support, with pricing quoted by entity structure and service scope, and its tax team is trained in US tax law and IRS rules. Write to [email protected] to confirm whether the firm's scope fits your circumstances.
Frequently Asked Questions
Do I need to include Schedule 1 with my 2026 tax return?
Only if your return has a Schedule 1 income category or adjustment. A "2026 return" usually means the 2025 return filed in 2026; tax-year 2026 returns are filed the following season.
What is the $600 rule for 2026?
It usually refers to Form 1099-NEC/MISC payer reporting. The $600 threshold applied for 2025 and rises to $2,000 for tax years beginning after 2025. It is a reporting threshold, not a tax-free allowance.
What is the new $6,000 tax deduction for seniors in 2026?
It is the enhanced senior deduction on Schedule 1-A, not Schedule 1. It is $6,000 per eligible person aged 65+, with a valid SSN, phasing out at 6% of MAGI above $75,000 ($150,000 MFJ).
What is the difference between Schedule 1 and Schedule 1-A?
Schedule 1 reports additional income and AGI adjustments; its totals go to Form 1040 lines 8 and 10. Schedule 1-A is a separate form for four specified deductions, flowing to line 13b.
How does Schedule 1 work for a US taxpayer living in Australia?
You report worldwide income in US dollars using a consistent exchange-rate method. FEIE or foreign tax credits may apply, but not to the same income. Super, pensions, rental and business income need separate review, and ATO obligations remain.
