What Is the AGI Number and How Do You Calculate It?

Adjusted Gross Income (AGI) is a foundational concept in the realm of personal finance and taxation. It serves as a crucial figure in determining an individual’s tax liability and eligibility for various tax benefits. Understanding AGI is a first step for taxpayers as they navigate their annual tax responsibilities.

AGI represents a refined measure of income, setting the stage for calculating what ultimately becomes taxable income. It is a stepping stone that accounts for specific reductions from a taxpayer’s total earnings. This particular income figure is used by tax authorities to evaluate eligibility for a wide array of deductions, credits, and other financial considerations.

Understanding Adjusted Gross Income

Adjusted Gross Income (AGI) is your total income from all sources, often called gross income, minus specific allowable reductions. These reductions are commonly referred to as “above-the-line” deductions. The “adjusted” aspect highlights that this figure is not simply all money earned, but rather a modified amount reflecting certain permitted subtractions. Your AGI is always calculated before you apply either the standard deduction or itemized deductions to your income.

AGI is a significant figure because it serves as the baseline for determining your taxable income. While gross income encompasses all earnings before any deductions, AGI provides a more accurate picture of income that is subject to further tax calculations. For many, AGI and Modified Adjusted Gross Income (MAGI) might be the same, though MAGI can involve adding back certain deductions for specific program eligibility.

Calculating Adjusted Gross Income

The calculation of Adjusted Gross Income begins with your total gross income, which includes nearly all money you receive throughout the year. This encompasses wages, salaries, and tips from employment, as well as self-employment income from a business or independent contractor work. Other common sources include interest earned from savings accounts and investments, dividends from stocks, capital gains from selling assets, and rental income from properties. Alimony payments received from divorce agreements finalized before 2019 are also included in gross income.

From this total gross income, specific “above-the-line” deductions are subtracted to arrive at your AGI. These are subtracted before the line on the tax form where AGI is reported. These deductions include:

• Student loan interest paid (up to $2,500)
• Educator expenses (up to $300 for unreimbursed classroom expenses)
• Half of self-employment tax paid
• Contributions to a Health Savings Account (HSA)
• Contributions to a traditional Individual Retirement Account (IRA), though income limitations may apply
• Alimony payments made under divorce decrees issued before 2019
• Certain business expenses for reservists, performing artists, and fee-basis government officials

Why Adjusted Gross Income Matters

Adjusted Gross Income affects numerous financial aspects beyond calculating your tax bill. A lower AGI can lead to a reduced tax liability and increased eligibility for various tax benefits. This figure is frequently used to determine thresholds for claiming certain deductions and credits.

For instance, your AGI influences the deductibility of medical expenses; only amounts exceeding 7.5% of your AGI can be deducted if you itemize. The higher your AGI, the more medical expenses you must incur before you can claim a deduction. AGI also determines eligibility for the state and local tax (SALT) deduction limit, which is capped at $10,000 annually for itemizers.

AGI is a primary factor for qualifying for several tax credits that directly reduce the amount of tax owed. These include the Child Tax Credit, the Earned Income Tax Credit, and education credits. Eligibility for the premium tax credit, which helps individuals afford health insurance purchased through a marketplace, is also based on AGI. Furthermore, AGI is considered for non-tax purposes, such as determining eligibility for income-driven student loan repayment plans, calculating Medicare Part B premiums, and assessing financial aid for higher education.

Locating Your Adjusted Gross Income

Finding your Adjusted Gross Income is straightforward once your tax return is prepared. For the most recent tax years, including 2024, your AGI is reported on Line 11 of Form 1040, U.S. Individual Income Tax Return. This line number also applies to Form 1040-SR and Form 1040-NR.

If you utilize tax preparation software, it automatically calculates your AGI as you input your financial information. The software then places the calculated AGI on the correct line of your tax forms. To find your AGI from previous tax years, the primary source is a copy of your prior year’s tax return. The IRS also allows taxpayers to access their tax transcripts online or request a copy of their return, which will show the AGI.