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What is adjusted gross income (AGI)?
Adjusted gross income, or AGI, is your gross income minus certain adjustments. The IRS uses this number as a basis for calculating your taxable income. AGI can also determine which deductions and credits you may qualify for.
How is adjusted gross income (AGI) calculated?
Adjusted gross income is your gross income — which includes wages, dividends, alimony, capital gains, business income, retirement distributions and other income — minus certain payments you’ve made during the year, such as student loan interest or contributions to a traditional individual retirement account or a health savings account.
In general, the formula for calculating AGI is to determine your gross income. This includes income from:
And then subtract:
Certain business expenses.
Deductible HSA contributions.
Moving expenses for military.
Deductible self-employment taxes.
Contributions to retirement plans or health insurance for self-employed people.
Penalties on early withdrawals of savings.
Deductible IRA contributions.
Student loan interest.
Deductible tuition and fees.
Up to $600 of charitable contributions if you're taking the standard deduction.
Tax software or your tax preparer will calculate your adjusted gross income as part of the process of preparing your tax return.
Where is adjusted gross income (AGI) on a tax return?
You can find your adjusted gross income right on your IRS Form 1040. On your 2021 federal tax return, your AGI is on line 11 of your Form 1040.
The significance of adjusted gross income (AGI)
Your AGI is often the starting point for calculating your tax bill. From there, you’ll make various adjustments and subtract your allowable deductions to find the amount on which you’ll pay tax: That's your taxable income. You’ll see the term “adjusted gross income (AGI)” repeated throughout your tax forms.
AGI is the basis on which you might qualify for many deductions and credits. For example, you may be able to deduct unreimbursed medical expenses, but only when they're more than 7.5% of your AGI. So the lower your AGI, the greater the deduction.
Your state tax return might also use your federal AGI as a starting point. If you file taxes online, your software will calculate your AGI.
What is your modified adjusted gross income (MAGI)?
According to the IRS, for most taxpayers, modified adjusted gross income, or MAGI, is simply adjusted gross income before subtracting deductible student loan interest.
If you’re filing Form 1040 and itemizing so that you can take certain deductions, you may have to calculate your MAGI. It can also be a baseline for determining the phaseout level of some credits and tax-saving strategies, and sometimes the formula for MAGI can depend on the type of tax benefit it applies to.
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