Adjusted Gross Income (AGI)

What is AGI?

Adjusted gross income (AGI) is your total annual income after specific adjustments, and it’s the starting point the IRS uses to determine tax liability. AGI affects whether you qualify for many deductions, credits, and certain government programs.

Why AGI matters

• Determines eligibility for tax credits and deductions (and limits for some of them).
• Influences certain benefits and program eligibility (for example, Roth IRA contributions and health insurance subsidies).
• Many states use federal AGI as the basis for state income tax calculations.

What counts as income

Gross income includes wages, self-employment income, interest, dividends, capital gains, rental income, pensions, and other taxable sources. Some income items may be partially or fully tax-exempt under specific rules.

How to calculate AGI (step by step)

1. Add up all gross income for the year (W-2, 1099, investment income, rental income, capital gains, etc.).
2. Include other taxable items such as taxable Social Security, unemployment benefits, and taxable portions of pensions or IRA distributions.
3. Subtract allowable adjustments to income (these are reported on Schedule 1 of Form 1040).
4. The result is your AGI.

To get taxable income, subtract either the standard deduction or your total itemized deductions from your AGI.

Common adjustments that reduce AGI

Adjustments are specific deductions taken before calculating your AGI, such as:
* Student loan interest deduction
Educator (teacher) expenses
Health Savings Account (HSA) contributions
Deductible portion of self-employment tax
Self-employed health insurance premiums
Traditional IRA contributions (when deductible)
SEP, SIMPLE, and other qualified retirement-plan contributions for the self-employed
Moving expenses for active-duty military members
Penalties on early savings withdrawals

Not everyone qualifies for these adjustments; if none apply, your AGI equals your gross income.

Example: AGI affecting itemized deductions

Medical and dental itemized deductions are limited to the amount that exceeds a percentage of your AGI (commonly 7.5%). For example:
* If you have $12,000 in unreimbursed dental expenses and an AGI of $100,000, the 7.5% floor is $7,500, so deductible amount = $12,000 − $7,500 = $4,500.
* With the same $12,000 in expenses but an AGI of $50,000, the 7.5% floor is $3,750, so deductible amount = $12,000 − $3,750 = $8,250.

Lower AGI generally increases the portion of such expenses you can deduct and can make other credits and deductions available.

AGI vs. MAGI vs. Gross vs. Taxable Income

• Gross income: All income received that is not specifically exempt.
• AGI: Gross income minus allowable adjustments.
• Modified AGI (MAGI): AGI with certain items added back (rules vary by program). MAGI is used to determine eligibility for things like Roth IRA contributions and ACA subsidies. MAGI will always be equal to or higher than AGI.
• Taxable income: AGI minus the standard deduction or itemized deductions (and any qualified business income deduction, where applicable).

Where to find AGI on your tax return

AGI is reported on your Form 1040 (specific line may vary by year), and you’ll often need last year’s AGI when filing electronically as a verification step.

Key takeaways

• AGI is the fundamental income figure used to determine tax liability and eligibility for many tax benefits.
• Reduce AGI by claiming eligible adjustments (student loan interest, HSA, certain retirement contributions, etc.).
• MAGI modifies AGI for eligibility determinations for some programs and is typically higher than AGI.
• Understanding which adjustments apply to you can lower taxable income and increase access to deductions and credits.

Bottom line: Know what counts as income, keep track of eligible adjustments, and calculate AGI carefully—doing so helps minimize taxes and preserve access to tax benefits.