What Is an AGI Number for Taxes & Why Does It Matter?
Understand AGI, the core income figure that fundamentally influences your tax situation and eligibility for benefits.
Adjusted Gross Income (AGI) is a key concept in the United States tax system, representing your total income after specific deductions. The IRS uses it as a starting point for calculating tax liability. Understanding your AGI is important because it directly influences your eligibility for various tax benefits, deductions, and credits.
How AGI is Calculated
Calculating Adjusted Gross Income begins with your total income from all sources, or Gross Income. This encompasses a wide range of earnings, including wages, salaries, tips, interest, dividends, capital gains, business income, and retirement distributions.
From this gross income, specific deductions are subtracted to arrive at AGI. These are “above-the-line” deductions, meaning they are subtracted before AGI is determined. These adjustments reduce your total income directly, regardless of whether you choose to take the standard deduction or itemize your deductions. Common examples of these adjustments include contributions to a traditional Individual Retirement Account (IRA), payments for student loan interest, contributions to a Health Savings Account (HSA), and certain self-employment tax deductions. Educator expenses and alimony payments are also examples of deductions that reduce gross income to AGI.
The Importance of AGI
A lower AGI can lead to a reduced tax bill by increasing the likelihood of qualifying for these tax-saving opportunities. The IRS uses AGI thresholds to phase out or limit various tax breaks, meaning that as your AGI increases, the amount of certain credits or deductions you can claim may decrease.
For instance, AGI plays a role in determining eligibility for certain tax credits, such as the Child Tax Credit, Earned Income Tax Credit, and education credits. It also impacts the amount of itemized deductions that can be claimed. For example, medical expense deductions are generally limited to the amount exceeding 7.5% of your AGI. The deductibility of traditional IRA contributions can also be affected by your AGI if you are covered by a retirement plan at work. Furthermore, the taxability of Social Security benefits is often dependent on AGI levels.
Locating Your AGI
Taxpayers can easily find their Adjusted Gross Income on their federal income tax return. AGI is reported on Line 11 of IRS Form 1040, U.S. Individual Income Tax Return.
If you need to retrieve your AGI from a previous tax year and do not have a copy of your return, several options are available. You can typically access past tax returns through the tax software you used to file. Additionally, the IRS provides a service where taxpayers can request a tax transcript, which includes their AGI, through their online account. This information is often required for identity verification when electronically filing a new tax return.