Above-the-Line Deduction
Tax Glossary Term
Definition
An above-the-line deduction is subtracted from your gross income to arrive at your Adjusted Gross Income (AGI). The 'line' refers to the AGI line on Form 1040 — deductions taken above it reduce AGI directly, while deductions below it (standard or itemized) reduce taxable income from AGI. The critical advantage of above-the-line deductions is that you get them regardless of whether you take the standard deduction or itemize. This means they stack on top of either option. Traditional above-the-line deductions include contributions to a traditional IRA, HSA contributions, student loan interest (up to $2,500), the deductible half of self-employment tax, educator expenses (up to $300), alimony payments under pre-2019 agreements, and moving expenses for military members. Starting in 2026, the OBBBA added three new above-the-line deductions reported on Schedule 1-A: the qualified tips deduction (up to $25,000), the overtime premium deduction (up to $12,500), and the senior bonus deduction ($6,000 for age 65+). Because above-the-line deductions lower AGI, they can have a cascading effect: reducing AGI may help you qualify for credits and deductions that have AGI-based phase-outs, such as the Child Tax Credit, Roth IRA contributions, and ACA premium subsidies. This makes them particularly powerful compared to below-the-line deductions of the same dollar amount.
Example
Gross income: $85,000
Traditional IRA contribution: -$7,000
Student loan interest: -$2,500
Schedule 1-A tips deduction: -$15,000
AGI: 60,500
(Then subtract standard deduction of $16,100 = $44,400 taxable)