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.
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FAQs
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, dividends and interest from a bank account—minus specific deductions, or “adjustments” that you're eligible to take.
How do I find my AGI on my W2? ›
Your adjusted gross income acts as a guidepost for several aspects of your finances. Your AGI determines whether you're eligible for various tax credits during tax time. While you can't find AGI on the W2 your employer sent you, you'll use your Form W-2 to help calculate AGI.
Is adjusted gross income before or after taxes? ›
Key Takeaways. Gross income is the entire amount of money an individual earns, including wages, salaries, bonuses, and capital gains. Adjusted gross income (AGI) is an individual's taxable income after accounting for deductions and adjustments.
What is the AGI limit for adjusted gross income? ›
Tax Year 2021
| Children or Relatives Claimed | Maximum AGI (filing as Single, Head of Household, Widowed or Married Filing Separately*) | Maximum AGI (filing as Married Filing Jointly) |
|---|
| Zero | $21,430 | $27,380 |
| One | $42,158 | $48,108 |
| Two | $47,915 | $53,865 |
| Three | $51,464 | $57,414 |
Mar 15, 2024
How to Locate Your Previous Year AGI If You Don't Have Access to Your Return
- View or download a transcript of your return online at www.irs.gov.
- Go to www.irs.gov and request a hard copy transcript of your return be mailed to you. ...
- Call the IRS at 800-908-9946 and request a hard copy transcript be mailed to you.
Alternatively, you can calculate your gross income as (1) your monthly salary before taxes or (2) the number of hours you will work in a given month multiplied by your hourly pay rate.
How to find AGI on paystub? ›
Most pay stubs have a line marked gross income, which includes not only your take-home pay but also any deductions that were taken out of your paycheck. This figure is the starting point for calculating AGI. Elsewhere on your pay stub, you'll see deductions for various items.
What does AGI stand for? ›
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.
What is an example of 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.
Is adjusted gross income the same as earned income? ›
AGI. You calculate your final, adjusted gross income using gross income. Although gross income includes earned income, you make any adjustments after calculating the total amount of your earnings. Some adjustments may apply to your earned income, like retirement fund deductions from your paycheck.
What does adjusted gross income mean? Adjusted gross income, or AGI, is a person's total gross income minus specific deductions or payments made throughout the year. Your adjusted gross income is the amount of money you receive each month that is subject to taxes. AGI is only used on individual tax returns.
How do I calculate my AGI? ›
You can determine your AGI by calculating your annual income from wages and other income sources (gross income), then subtracting certain types of payments, such as student loan interest, alimony, retirement contributions, or health savings account contributions, you've made during the year.
Is my AGI on my W2? ›
You can't find AGI on W-2 Forms. You'll calculate your adjusted gross income (AGI) on Form 1040.
What reduces gross income to AGI? ›
To boil it down, it's simply your total gross income minus specific tax deductions. Some common examples of eligible deductions that reduce adjusted gross income include deductible traditional IRA contributions, health savings account contributions, and educator expenses.
Can I file my taxes without my AGI from last year? ›
If you lack the previous year's AGI, don't fret. Simply enter $0 as your prior-year AGI on line 38 of Form 1040 or line 21 of Form 1040-SR. This is an acceptable workaround provided by the IRS when you can't access your prior-year tax return.
How do I calculate my modified adjusted gross income? ›
Your MAGI (modified adjusted gross income) is your AGI plus certain deductions you must “add back.” These deductions include IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, and more.
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.
Itemized deductions (and the standard deduction) are dollar amounts that are deducted from your AGI. Your gross income is the total amount of money you earn during a tax year, including salaries, wages, tips, self-employment income, and investment income among others.
