All four Schedule 1-A deductions are taken after adjusted gross income (AGI). They lower taxable income, but your AGI stays the same. Most benefits and credits are based on AGI or on “modified AGI” built from it, so they don't change.
| Program | Based on | Effect of the new deductions |
|---|---|---|
| Earned Income Tax Credit (EITC) | Earned income and AGI | None. Tips and overtime still count as earned income. |
| ACA premium tax credit (Marketplace) | Modified AGI | None. Your subsidy doesn't go up. |
| Medicaid and CHIP | Modified AGI | None. |
| Income-driven student loan payments | AGI | None. |
| Taxable portion of Social Security | Provisional income | None. |
| Medicare premiums (IRMAA) | Modified AGI | None. |
The one thing to watch
Because the deductions lower your tax, your refund can change even though credits don't. If you have no income tax left to cut (common for lower-income workers who already owe $0 after the standard deduction), the new deductions add nothing; refundable credits like the EITC work separately and aren't reduced.
Example
A single server with $24,000 of income and $10,000 of tips owed $790 of federal income tax before the deduction. The deduction removes that $790. Their EITC, if they qualify, is calculated exactly as before, because their earned income and AGI didn't change.
Common questions
Does no tax on tips reduce my EITC?
No. Tips are still earned income and your AGI doesn't change, so the EITC is calculated the same way.
Will the deduction increase my ACA subsidy?
No. ACA subsidies use modified AGI, which the new deductions don't lower.
Can it make me lose Medicaid?
No. Medicaid uses modified AGI, which isn't affected either way.
Sources
- IRS FS-2025-03: Tax deductions for working Americans and seniors
- IRS: Schedule 1-A and instructions
- IRS: Earned Income Tax Credit
- HealthCare.gov: What's included as income
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