Adjusted gross income (AGI) can directly impact the deductions and credits you are eligible for, which can wind up reducing the amount of taxable income you report on your tax return.
Key Takeaways
- Your adjusted gross income (AGI) is equal to the total income you report minus specific deductions, or adjustments, that you’re eligible to take.
- Income adjustments can include contributions to eligible retirement accounts, student loan interest you paid, alimony payments to a former spouse (for agreements prior to 2019), self-employed health insurance premiums, and half of the self-employment taxes you pay.
- If your state has an income tax, your AGI can affect those taxes, too, since many states use your federal AGI as the starting point for calculating your state taxable income.
AGI Overview
When preparing your tax return, you probably pay more attention to your taxable income than your adjusted gross income (AGI). However, your AGI is also worthy of your attention, since it can directly impact the deductions and credits you’re eligible for—which can wind up reducing the amount of taxable income you report on the return.
AGI calculation
The AGI calculation is relatively straightforward.
- It is equal to the total income you report that’s subject to income tax—such as earnings from your job, self-employment, dividendsand interest from a bank account—minus specific deductions, or “adjustments” that you’re eligible to take.
- Your AGI is calculated before you take the standard or itemized deductions —which you report in later sections of your tax return.
Adjustments to income
Adjustments to income are specific deductions that directly reduce your total income to arrive at your AGI. The types of adjustments that you can deduct are subject to change each year, but a number of them consistently show up on tax returns year after year. Some of these adjustments include:
- half of the self-employment taxes you pay
- self-employed health insurance premiums
- alimony payments made to a former spouse (for agreements prior to 2019)
- contributions to certain retirement accounts (such as a traditional IRA)
- student loan interest paid
TurboTax Tip:
Your AGI can directly impact the deductions and credits you’re eligible to take, potentially reducing your taxable income and the amount of taxes you owe. For example, your AGI has to be below certain levels to claim the Lifetime Learning Credit.
Impact on deductions and credits
Many of the deductions and credits that taxpayers commonly take advantage of each year are subject to AGI limitations. If you itemize deductions, for example, you must reduce your medical and dental expenses by 7.5% of your AGI. This means that you can only deduct the amount that exceeds 7.5% of your AGI. Therefore, the lower your AGI is, the more of your medical and dental expenses you can deduct.
Even some of your adjustments to income are subject to AGI limitations despite the fact that those deductions are necessary to calculate your AGI. If you’re eligible to deduct some of your tuition payments, your modified adjusted gross income (MAGI) determines whether you qualify.
Other AGI implications
If you live in a state that requires you to file annual income tax returns, your AGI can also impact your state taxable income. This is because many states use your federal AGI as the starting point for calculating your state taxable income. And if you claim a tax credit, such as the lifetime learning credit, for your school expenses, the IRS requires that your MAGI be below certain thresholds in order to claim the credit.
With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish. Or, get unlimited help and advice from tax experts while you do your taxes with TurboTax Live Assisted.
And if you want to file your own taxes, you can still feel confident you'll do them right with TurboTax as we guide you step by step. No matter which way you file, we guarantee 100% accuracy and your maximum refund.
FAQs
Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take. Gross income includes wages, dividends, capital gains, business and retirement income as well as all other forms income.
What is your AGI adjusted gross income? ›
Your adjusted gross income (AGI) is your total (gross) income from all sources minus certain adjustments such as educator expenses, student loan interest, alimony payments and retirement contributions. If you use software to prepare your return, it will automatically calculate your AGI.
How do I get my AGI? ›
To retrieve your original AGI from your previous year's tax return you may do one of the following:
- Use the IRS Get Transcript Online tool to immediately view your Prior Year AGI. ...
- Contact the IRS toll free at 1-800-829-1040.
- Complete Form 4506-T Transcript of Electronic Filing at no cost.
You can't find AGI on W-2 Forms. You'll calculate your adjusted gross income (AGI) on Form 1040. Your AGI includes amounts from your W-2.
How do you calculate AGI from paystub? ›
First, calculate gross income by adding together wages, tips, and taxable distributions. Next, deduct the other payments, contributions, and expenses from gross income to calculate AGI.
How do I adjust my AGI? ›
How to Reduce AGI After Year End [2024]
- Contribute to a Retirement Account. Individual Retirement Accounts. Spousal IRA. ...
- Contribute to Your Health Savings Account.
- Take Advantage of All the Credits and Deductions You're Eligible For. Other Savings Plans. ...
- Reduce Your AGI and Save on Your Tax Bill.
MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. For many people, MAGI is identical or very close to adjusted gross income. MAGI doesn't include Supplemental Security Income (SSI).
How do I find my gross income? ›
Your gross income can be found on your paystub as the total take-home pay you earned in a given period before any taxes or deductions are removed. You can also find your total gross income on your year-end W2 or 1099 tax forms.
Is box 1 on W2 gross income? ›
The amount reported in box 1 (Wages, Tips and Other Compensation) is an employee's "taxable compensation", not gross wages. Taxable compensation is gross wages (the total amount of earnings on your earnings statement) less those items the IRS considers "non-taxable."
How to figure out gross income from W2? ›
Gross Income - this is income before all taxes, and may be found in box 1. Net Income - this is income after tax. It may be computed by taking box 1 and subtracting all taxes. Federal Income Tax - Taxes paid to the Federal government.
Gross monthly income is calculated by adding up all sources of income before deductions. It includes wages, salaries, tips, bonuses, commissions, rental income, and other forms of income. To calculate gross monthly income, add up the amounts earned from each income source.
What does AGI stand for? ›
What is artificial general intelligence? Artificial general intelligence (AGI) is a field of theoretical AI research that attempts to create software with human-like intelligence and the ability to self-teach. The aim is for the software to be able to perform tasks that it is not necessarily trained or developed for.
How to calculate adjusted taxable income? ›
Your ATI is the sum of the following amounts:
- taxable income (excluding any assessable First home super saver released amount)
- adjusted fringe benefits total, which is the sum of. ...
- reportable employer superannuation contributions.
- deductible personal superannuation contributions.
When you subtract either your standard deduction or your itemized deductions from your AGI, the result is your taxable income.
Why is my AGI higher than my income? ›
Your adjusted gross income (AGI) is equal to your gross income minus any eligible adjustments that you may qualify for. These adjustments to your gross income are specific expenses the IRS allows you to take that reduce your gross income to arrive at your AGI.
