What Is Adjusted Gross Income (AGI)?
Adjusted gross income (AGI) is the number that the Internal Revenue Service (IRS) uses to determine your income taxes owed for the year. The number is your total taxable income for the year minus certain adjustments that you may qualify for.
Adjustments are made for business expenses, student loan interest payments, and contributions to retirement accounts, for example. These are subtracted from gross income to arrive at adjusted gross income.
A different number, modified AGI (MAGI) is used to determine a taxpayer's eligibility for specific programs and retirement accounts.
Key Takeaways
- The IRS uses your adjusted gross income (AGI) to determine how much income tax you owe for the year.
- Your AGI is calculated by subtracting certain adjustments to income from your total income for the year (your gross income).
- Your AGI can affect your eligibility for some types of retirement plan contributions, such as a Roth individual retirement account.
- Modified adjusted gross income (MAGI) is your AGI with some otherwise allowable deductions added back in. For many people, AGI and MAGI will be the same.
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Understanding Adjusted Gross Income (AGI)
Gross income is the sum of all the money you earn in a year, which may includewages, dividends, capital gains, interest income, royalties, rental income,and retirement distributions, before tax or deductions.
AGImakes certain adjustments to your gross income to reach the figure on which your tax liability will be calculated.
Many U.S. states also use the AGI number from federal returns to calculate how much individuals owe in state income taxes. States may modify this number further with state-specific deductions and credits.
AGI is an important figure because it determines your eligibility for certain deductions and tax credits.
Common Adjustments
The items subtracted from your gross income to calculate your AGI are referred to as adjustments to income and you report them on Schedule 1 when you file your annual tax return. Some of the most commonadjustments include:
- Early withdrawal penalties on savings
- Educator expenses
- Employee business expenses for armed forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses (Form 2106)
- Health Savings Account (HSA) deductions (Form 8889)
- Moving expenses for members of the armed forces (Form 3903)
- Some IRA contributions (Schedule 1)
- Self-employed Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), and qualified plans
- Self-employed health insurance deduction
- Self-employment tax (the deductible portion)
- Student loan interest deduction
How to Calculate Adjusted Gross Income
If you use software to prepare your tax return, it will calculate your AGI after you've input your income numbers. If you calculate it yourself, you’ll tally your total reported income for the year. That might include job income, as reported to the IRS by your employer on a W-2 form, plus other income, such as dividends, self-employment income, and miscellaneous income, reported on 1099 forms.
Next add any taxable income from other sources, such as profit on the sale of a property, unemployment compensation, pensions,Social Security payments,and IRA contributions. Many of these items are also listed on IRS Schedule 1.
Subtract Your Adjustments
The next step is to subtract the adjustments that apply to you. The resulting figure is your AGI.
Then, to determine your taxable income, subtract either the standard deduction or your total itemized deductions from your AGI.
The standard deduction for tax returns for married couples filing jointly is $29,200 for the 2024 tax year or $14,600 for single filers. Taxpayers whose itemized deductions exceed that amount would generally opt to itemize, while others would take the standard deduction.
The IRS provides a list of itemized deductions and the requirements for claiming them on its website. Your AGI also affects your eligibility for many of these deductions and tax credits.
The lower your AGI, the more significant the number of deductions and credits you'll generally be eligible to claim, and the more you’ll be able to reduce your tax bill.
An Example of AGI Affecting Deductions
Let’s say you had some significant dental expenses during the year that weren’t reimbursed by insurance and you’ve decided to itemize your deductions. You're allowed to claim an itemized deduction for the portion of those expenses that exceed 7.5% of your AGI.
This means that you can deduct the amount that exceeds $7,500, or $4,500, if you report $12,000 in unreimbursed dental expenses and have an AGI of $100,000. But the 7.5% reduction is just $3,750 if your AGI is $50,000, and you’d be entitled to deduct a larger amount, $8,250 in this case.
Adjusted Gross Income (AGI) vs. Modified Adjusted Gross Income (MAGI)
Some tax calculations and government programs are based on your modified adjusted gross income or MAGI. This figure starts with your AGI, then it adds back certain items, such as any deductions you take for student loan interest or tuition and fees.
Your MAGI determines how much, if anything, you can contribute to a Roth individual retirement account (Roth IRA) in any given year. Pre-tax contributions to traditional 401(k) funds help to reduce your AGI and MAGI taxable income. Roth IRA contributions are made with after-tax dollars and won't further reduce your AGI or MAGI.
It's also used to calculate your income if you apply for Marketplace health insurance under the Affordable Care Act (ACA).
Many people with relatively uncomplicated financial lives find that their AGI and MAGI are the same.
If you file electronically, the IRS form will ask you for your previous year’s AGI as a way of verifying your identity.
Adjusted Gross Income vs. Gross Income vs. Taxable Income
Your gross income is all the money you've earned in a year that isn't exempt from taxation. This income can be in the form of salary, wages, self-employment income, interest, dividends, or capital gains.
Your adjusted gross income is that amount minus certain qualified expenses and adjustments.
You then subtract either the standard deduction or the total of your itemized deductions for the year. You can't take both itemized deductions and the standard deduction.
The result is your taxable income.
Where to Find Your Adjusted Gross Income (AGI)
You report your AGI on line 11 of IRS Form 1040, the form you use to file your income taxes for the year.
Keep that number handy after completing your taxes because you'll need it again if you e-file your taxes next year. The IRS uses it as a way to verify your identity.
What Does Adjusted Gross Income (AGI) Mean on My Tax Return?
Adjusted gross income (AGI) is your taxable income for the year after accounting for all applicable tax deductions. It's an important number that's used by the IRS to determine how much you owe in taxes.
AGI is calculated by taking your gross income from the year and subtracting any deductions that you're eligible to claim. Your AGI will always be less than or equal to your gross income.
What Are Some Common Adjustments Used When Determining AGI?
Most are tax breaks that reduce your taxable income. One big one is an adjustment for student loan interest. Others are more specialized, such as an adjustment for moving expenses incurred by military personnel and an adjustment for teachers who buy classroom supplies.
You may qualify for none of these adjustments, in which case your adjustable gross income will be identical to your gross income.
What Is the Difference Between AGI and Modified Adjusted Gross Income (MAGI)?
AGI and modified adjusted gross income (MAGI) are very similar except that MAGI adds back certain deductions. MAGI will always be larger than or equal to AGI for this reason.
Common examples of deductions that are added back to calculate MAGI include foreign earned income, income earned on U.S. savings bonds, and losses arising from a publicly traded partnership.
The Bottom Line
Adjusted gross income or AGI reduces your taxable income for the year if you qualify for any of a list of qualified deductions. You can still take the standard deduction or itemize deductions if you wish. The AGI allows you to take certain deductions up front without filing a Schedule A.
However, many of the adjustments allowed for AGI are specific for particular circ*mstances that don't apply to everyone. Don't be surprised if your gross income and your adjusted gross income are the same number.
Correction—Nov. 8, 2023: A previous version of this article omitted the IRA deduction as one of the common adjustments to calculate AGI.
