What Is Your AGI on a Tax Return?

Adjusted Gross Income (AGI) is a foundational figure in U.S. tax returns. It represents a taxpayer’s total income reduced by specific deductions, serving as an intermediate calculation before determining final taxable income. Understanding AGI is important for individuals to navigate their tax obligations, as it plays a significant role in various tax calculations and eligibility.

Understanding Gross Income

Gross income encompasses all income received from various sources before any deductions or adjustments. This includes wages, salaries, tips, and investment income like interest and dividends. It also includes earnings from a business or profession, capital gains from asset sales, and rental income. Other common sources are unemployment compensation, alimony received (for agreements executed before 2019), and taxable refunds, credits, or offsets of state and local income taxes.

Defining Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) is calculated by subtracting specific “above-the-line” deductions from your gross income. This preliminary income figure is used for various purposes on your tax return, serving as a benchmark for determining eligibility for many tax credits and other deductions. For the 2024 tax year, AGI is found on line 11 of Form 1040, Form 1040-SR, or Form 1040-NR. The IRS may require a taxpayer’s prior year AGI to verify identity when electronically filing.

Deductions That Reduce Gross Income to AGI

Above-the-line deductions are subtracted from gross income to arrive at AGI. These deductions reduce your AGI directly, whether you take the standard deduction or itemize. A lower AGI can open the door to other tax benefits.

Educator Expenses

Eligible educators (K-12, 900+ hours) can deduct up to $300 for unreimbursed classroom expenses in 2024. Joint filers who are both eligible educators can deduct up to $600 ($300 per person). Qualified expenses include books, supplies, computer equipment, and professional development.

Student Loan Interest

Taxpayers can deduct up to $2,500 of interest paid on qualified student loans. This deduction is subject to income phase-outs based on Modified Adjusted Gross Income (MAGI). For 2024, the deduction is gradually reduced for single filers with MAGI between $80,000 and $95,000, and for joint filers with MAGI between $165,000 and $195,000.

IRA Contributions

Contributions to Traditional IRAs can be an above-the-line deduction. For 2024, the maximum contribution to a Traditional IRA is $7,000, or $8,000 for those age 50 or older. The deductibility of these contributions can be limited if the taxpayer or their spouse is covered by an employer-sponsored retirement plan and their income exceeds certain thresholds.

Health Savings Account (HSA) Contributions

These are pre-tax deductions. For 2024, individuals with self-only high-deductible health plan coverage can contribute up to $4,150, while those with family coverage can contribute up to $8,300. An additional “catch-up” contribution of $1,000 is allowed for individuals age 55 or older.

Self-Employment Deductions

Self-employed individuals can deduct one-half of their self-employment tax, self-employed health insurance premiums, and contributions to self-employed retirement plans (such as SEP IRAs or Solo 401(k)s).

Alimony Paid

Alimony paid under divorce or separation agreements executed before 2019 is also deductible.

Why AGI is a Key Figure

Adjusted Gross Income is a central figure in tax calculations because it affects eligibility for numerous tax credits and deductions, significantly impacting a taxpayer’s overall tax liability. AGI serves as the starting point for determining income thresholds for various tax benefits.

Medical Expense Deduction

Taxpayers can deduct qualified unreimbursed medical expenses only if they exceed 7.5% of their AGI. For example, if a taxpayer’s AGI is $50,000, they can only deduct medical expenses exceeding $3,750.

Child Tax Credit (CTC)

AGI determines eligibility for refundable tax credits like the Child Tax Credit (CTC). For the 2024 tax year, the Child Tax Credit begins to phase out for single filers with a Modified Adjusted Gross Income (MAGI) above $200,000 and for married couples filing jointly with MAGI above $400,000. The credit amount is reduced by $50 for every $1,000 (or fraction thereof) that MAGI exceeds these thresholds.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC), a credit designed for low- and moderate-income workers, has AGI limits that vary based on filing status and the number of qualifying children. For 2024, the maximum EITC ranges from $632 for those with no qualifying children to $7,830 for those with three or more qualifying children, with specific AGI thresholds for eligibility. Investment income also has a limit, set at $11,600 for 2024, beyond which a taxpayer cannot qualify for the EITC.