Form 1040: Line-by-Line Explained
Form 1040 is the main document you file with the IRS each year. It summarizes your income, deductions, credits, and calculates what you owe or what refund you'll receive. Let's go through every line together.
Before We Start: The Big Picture
Form 1040 is really just a math problem that answers one question: Did you pay the right amount of tax this year? If you paid too much (through paycheck withholding or estimated payments), you get a refund. If you didn't pay enough, you owe money.
Every number on Form 1040 either comes directly from a document (W-2, 1099, etc.) or is calculated from other lines. There are no mystery numbers. If you don't know where a number came from, something is wrong.
Filing Status
Your filing status determines your tax rates, standard deduction amount, and eligibility for certain credits. You must pick one based on your situation as of December 31st of the tax year.
| Status | Who Qualifies | 2025 Std. Deduction |
|---|---|---|
| Single | Unmarried, divorced, or legally separated on Dec 31 | $15,000 |
| Married Filing Jointly (MFJ) | Married couples who combine their income on one return | $30,000 |
| Married Filing Separately (MFS) | Married but each spouse files their own return | $15,000 |
| Head of Household (HOH) | Unmarried + paid >50% of home costs + qualifying dependent | $22,500 |
| Qualifying Surviving Spouse | Spouse died in prior 2 years + dependent child | $30,000 |
Head of Household is often overlooked. Single parents who pay more than half the cost of their home may qualify for HOH, which gives you a higher standard deduction ($22,500 vs $15,000) and better tax rates than Single status.
Married Filing Separately rarely makes sense. MFS has the lowest standard deduction for married couples and disqualifies you from many credits. Only use it if you have a specific reason (like student loan repayment calculations or concerns about spouse's tax liability).
Dependents
Dependents are people who depend on you financially. Claiming dependents can qualify you for valuable tax credits like the Child Tax Credit ($2,000 per child) or Credit for Other Dependents ($500).
A qualifying child must be your son, daughter, stepchild, foster child, sibling, or descendant of any of these. They must be younger than you and not provide more than half of their own support.
A qualifying relative can be any age but must have gross income below $5,050 (2025) and receive more than half their support from you. This might include elderly parents, adult children, or other relatives.
Only one taxpayer can claim a dependent. If you're divorced, typically the custodial parent (who the child lives with most nights) claims the child unless you have a signed Form 8332 from the other parent.
Income: Wages, Salaries, Tips (Lines 1a-1z)
This is where most Americans report their primary income. If you work for an employer, this is your bread and butter.
This is your gross wages â what your employer paid you before any deductions. Look at Box 1 of your W-2 (not Box 3 or 5, which may be different). If you have multiple jobs, add up Box 1 from all your W-2s.
Sarah works two jobs. Her main job W-2 shows $52,000 in Box 1. Her part-time job W-2 shows $8,500 in Box 1. Line 1a = $52,000 + $8,500 = $60,500
If you paid someone (like a nanny or housekeeper) less than $2,700 in 2025, they may not have received a W-2, but the income is still taxable to them. Most people leave this blank.
If you received cash tips that weren't reported to your employer, report them here. Yes, cash tips are taxable income. The IRS knows restaurant servers and bartenders receive tips.
Add up all your wage-type income. This total flows into your Total Income calculation on Line 9.
Your W-2 Box 1 amount is less than your actual salary because pre-tax deductions (401k contributions, health insurance premiums, HSA contributions) are already subtracted. A $60,000 salary might show as $50,000 on your W-2 if you contributed $10,000 to your 401k.
Interest Income (Lines 2a-2b)
Interest is money you earn by letting someone else use your money â banks pay you interest on savings accounts, and the government pays you interest on bonds.
Interest from municipal bonds (bonds issued by states and cities) is usually not taxed by the federal government. You still report it here, but it won't be added to your taxable income. This helps the IRS track your total economic income.
Interest from bank accounts, CDs, money market accounts, and most bonds is taxable. If you earned more than $1,500 total, you must also file Schedule B to list each payer.
Interest from Series I Savings Bonds and Treasury bonds is taxable federally but exempt from state taxes. This can be valuable if you live in a high-tax state like California or New York.
Dividends (Lines 3a-3b)
Dividends are payments companies make to shareholders from their profits. Not all dividends are taxed the same way.
Qualified dividends get preferential tax rates â 0%, 15%, or 20% depending on your income, rather than your ordinary income tax rate. To be "qualified," dividends must be from U.S. companies (or qualifying foreign companies) and you must hold the stock for at least 61 days.
This is your total dividends, including both qualified and non-qualified (ordinary). Non-qualified dividends are taxed at your regular income tax rate. Line 3b is always equal to or greater than Line 3a.
You receive a 1099-DIV showing Box 1a (Ordinary Dividends) = $3,000 and Box 1b (Qualified Dividends) = $2,500. You report $2,500 on Line 3a and $3,000 on Line 3b. The $500 difference ($3,000 - $2,500) is taxed at your ordinary rate, while the $2,500 gets the lower qualified dividend rate.
IRA Distributions (Lines 4a-4b)
IRAs (Individual Retirement Accounts) are tax-advantaged accounts for retirement savings. When you take money out, it may or may not be taxable depending on the type of IRA.
The total amount you withdrew from all IRAs during the year. This includes both taxable and non-taxable portions.
The portion of your IRA distribution that is taxable. For Traditional IRAs, this is usually the full amount (because you got a tax deduction when you contributed). For Roth IRAs, qualified distributions are $0 taxable (because you already paid tax on contributions).
Traditional IRA: Tax deduction when you contribute â Pay tax when you withdraw
Roth IRA: No tax deduction when you contribute â Tax-free when you withdraw (if qualified)
If you withdraw from a Traditional IRA before age 59ÂŊ, you'll typically owe a 10% early withdrawal penalty on top of regular income tax. This is calculated on Form 5329 and added to your tax on Line 23.
Pensions and Annuities (Lines 5a-5b)
Pensions are retirement payments from employers. Annuities are retirement payments from insurance companies. Both work similarly to IRAs for tax purposes.
Total distributions received from employer pension plans, 401(k)s, 403(b)s, and annuities.
The taxable portion. If all contributions were pre-tax (like most 401k contributions), the entire distribution is taxable. If you made after-tax contributions, some portion may be tax-free.
Social Security Benefits (Lines 6a-6b)
Many people are surprised to learn Social Security can be taxable. Whether it is â and how much â depends on your other income.
Your total Social Security benefits for the year.
The taxable portion depends on your "combined income" (AGI + non-taxable interest + half your SS benefits). Up to 85% of your benefits can be taxable if your combined income is high enough.
If you're approaching retirement, consider the order of your withdrawals. Taking from taxable accounts first and letting Roth accounts grow can help keep your combined income lower, reducing how much Social Security is taxed.
Capital Gain or Loss (Line 7)
When you sell an investment for more than you paid, you have a capital gain. Sell for less, and you have a capital loss. This line reports your net result after combining all gains and losses.
This number comes from Schedule D (or the Capital Gain Tax Worksheet if you don't need Schedule D). It's your net capital gain or loss after combining short-term and long-term transactions.
If your losses exceed your gains, you can deduct up to $3,000 per year against ordinary income. Any excess carries forward to future years. So if you had $10,000 in net losses, you'd deduct $3,000 this year and carry $7,000 forward.
Additional Income (Line 8)
Line 8 catches all other income types that don't have their own line. This number comes from Schedule 1.
Schedule 1, Part I is where you report additional income including: self-employment income (Schedule C), rental income (Schedule E), unemployment compensation, alimony received (for pre-2019 divorces), gambling winnings, and more.
Total Income (Line 9)
This is the sum of all your income before any deductions or adjustments. It's your starting point for calculating how much tax you might owe.
Adjusted Gross Income (AGI)
AGI is one of the most important numbers on your tax return. Many tax benefits, deductions, and credits are based on or limited by your AGI.
These are "above-the-line" deductions that reduce your income before you even get to itemizing. They're available whether you take the standard deduction or itemize.
Your Total Income minus Adjustments. This number determines eligibility for many tax benefits.
Your AGI affects: Roth IRA contribution eligibility âĸ Child Tax Credit amounts âĸ Student loan interest deduction âĸ Medical expense deduction threshold âĸ Stimulus payment eligibility âĸ And dozens of other tax provisions
Standard vs. Itemized Deductions (Line 12)
You get to subtract deductions from your AGI before calculating tax. You'll use either the standard deduction OR itemized deductions â whichever gives you the bigger tax break.
Most people (about 90%) take the standard deduction because it's larger than their itemized deductions would be. You should itemize only if your total itemized deductions exceed your standard deduction.
| 2025 Standard Deductions | Amount | Additional (65+ or Blind) |
|---|---|---|
| Single | $15,000 | +$1,950 each |
| Married Filing Jointly | $30,000 | +$1,550 each |
| Married Filing Separately | $15,000 | +$1,550 each |
| Head of Household | $22,500 | +$1,950 each |
Consider itemizing if you have large amounts of: Mortgage interest (Form 1098) âĸ State and local taxes (up to $10,000 cap) âĸ Charitable donations âĸ Medical expenses exceeding 7.5% of AGI. If these don't exceed your standard deduction, take the standard deduction.
Qualified Business Income Deduction (Line 13)
If you have business income from a sole proprietorship, S-corporation, or partnership, you may qualify for an additional 20% deduction.
The QBI deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income. This deduction was created by the 2017 Tax Cuts and Jobs Act.
If you're self-employed with $100,000 in business profit, the QBI deduction could save you $4,400 to $7,400 in taxes (depending on your tax bracket). Don't miss this deduction!
Taxable Income (Line 15)
Your standard/itemized deduction plus your QBI deduction (if any).
This is the amount your tax is actually calculated on. It's your AGI minus your total deductions. This is NOT what you owe â it's the income that gets taxed.
Tax Calculation (Lines 16-24)
Now we calculate your actual tax liability. The IRS uses tax brackets â but they're marginal, meaning only the income in each bracket gets taxed at that rate.
Look up your tax in the Tax Tables (if taxable income is under $100,000) or calculate it using the Tax Computation Worksheet. Check the box for which method you used.
| 2025 Tax Brackets (Single) | Rate |
|---|---|
| $0 â $11,925 | 10% |
| $11,926 â $48,475 | 12% |
| $48,476 â $103,350 | 22% |
| $103,351 â $197,300 | 24% |
| $197,301 â $250,525 | 32% |
| $250,526 â $626,350 | 35% |
| Over $626,350 | 37% |
If your taxable income is $60,000 (single):
âĸ First $11,925 Ã 10% = $1,192.50
âĸ Next $36,550 ($11,926 to $48,475) Ã 12% = $4,386
âĸ Last $11,525 ($48,476 to $60,000) Ã 22% = $2,535.50
Total Tax = $8,114 (effective rate: 13.5%, not 22%)
Credits (Lines 19-21)
Tax credits are the most valuable tax benefits because they reduce your tax dollar-for-dollar. A $1,000 credit saves you $1,000 in taxes (unlike deductions, which only reduce taxable income).
Up to $2,000 per qualifying child under 17. Up to $1,700 is refundable (Additional Child Tax Credit). $500 credit for other dependents (non-child dependents).
Other nonrefundable credits including: Foreign Tax Credit, Education Credits (American Opportunity, Lifetime Learning), Retirement Savings Credit, Child and Dependent Care Credit, and more.
Total nonrefundable credits. These can reduce your tax to zero but won't give you a refund by themselves.
Your tax after nonrefundable credits. This can't go below zero.
Other Taxes (Lines 23-24)
Additional taxes that get added back including: Self-employment tax (15.3% on business income), Early withdrawal penalties from retirement accounts, Household employment taxes, and the Net Investment Income Tax (3.8% for high earners).
Add lines 22 and 23. This is your total tax liability for the year â what you actually owe.
Payments (Lines 25-33)
Now we look at what you've already paid toward your tax bill throughout the year. This is where refundable credits also appear.
Tax that was taken out of your paychecks throughout the year. This is reported in Box 2 of your W-2 and Box 4 of your 1099s.
Quarterly payments you made directly to the IRS (Form 1040-ES). Self-employed people and those with significant non-wage income typically make these payments.
A refundable credit for low-to-moderate income workers. Worth up to $7,830 (2025) for families with 3+ children. Even if you owe no tax, you can receive this as a refund.
The refundable portion of the Child Tax Credit. Up to $1,700 per child can be refunded even if you owe no tax.
Add up all your payments and refundable credits. This is everything working in your favor.
Refund or Amount You Owe (Lines 34-38)
The moment of truth. Compare your total tax to your total payments to see if you're getting money back or writing a check.
This copies your total payments from line 33 for easy comparison.
If you paid more than you owed, you get a refund! Subtract Line 24 from Line 34. You can have it direct deposited (provide routing and account numbers) or receive a check.
If you owe more than you paid, this is what you need to send to the IRS. Subtract Line 34 from Line 24. Pay by April 15 to avoid penalties and interest.
(if negative, you owe that amount instead)
A large refund means you gave the government an interest-free loan all year. Consider adjusting your W-4 withholding so you keep more money in each paycheck and get a smaller refund. The ideal is owing or receiving close to $0.
The penalty for not filing (5% per month) is much worse than the penalty for not paying (0.5% per month). Always file on time even if you can't pay. You can set up a payment plan with the IRS.