What Is Adjusted Gross Income AGI?

DonateAs a nonprofit, we depend on the generosity of individuals like you. Level-up your tax knowledge with free educational resources—primers, glossary terms, videos, and more—delivered monthly. Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. This information is intended to be educational and is not tailored to the investment needs of any specific investor. Here’s a quick rundown of which tax forms do, and don’t, contain your AGI. Here’s a closer look at what AGI is, how you can calculate it, and how it differs from other measures of income.

Your prior year’s AGI is readily available on your IRS tax return. For most individuals and organizations, this figure will appear on Line 11 of Form 1040 for tax years 2020 and later. For older returns, AGI appeared on a different line depending on the year and version of Form 1040 used. Ensure you reference the right spot by cross-checking the IRS instructions for that tax year. For nonprofits, if AGI is relevant due to unrelated business income tax (UBIT) or similar filings, refer to the corresponding form and line item as detailed in IRS documentation. Your AGI calculation will generally encompass salaries, self-employment income, rental income, tips, dividends, capital gains, and other forms of compensation received throughout the year.

Best Credit Cards of 2025

The modified adjusted gross income calculation generally adds items back into your income, such as the foreign earned income exclusion, student loan interest deduction or some types of tax-exempt bond interest. Modified adjusted gross income can be defined as your household’s AGI after any tax-exempt interest income and after factoring in certain tax deductions. For most individual tax purposes, AGI is more relevant than gross income.

AGI is the starting point for calculating your taxable income for the year. Once you select whether you will take the standard deduction or itemize your deductions, you can get an accurate sense of whether you will have a tax liability or tax refund. AGI also calculates what tax credits or deductions you might qualify for. For example, the earning income tax credit used earned income and AGI to determine eligibility. Many U.S. states also use the AGI number from federal returns to calculate how much individuals owe in state income taxes.

Adjusted Gross Income (AGI): What It Is and How to Calculate

• Common examples of deductions that are added back to calculate MAGI include foreign earned income, income earned on U.S. savings bonds, and losses arising from a publicly traded partnership.
• However, the specific MAGI calculation varies depending on which tax credits and deductions you’re looking at.
• Standard deductions depend on your tax filing status, while your itemized deductions depend on your financial situation for that year.
• Your earnings, dividends, capital gains, company revenue, retirement payouts, and other sources of income are all included in your gross income .
• The offers that appear on this site are from companies that compensate us.

If the taxpayer’s MAGI is less than $70,000, ($140,000 if they are married filing jointly), then the taxpayer is eligible to deduct all of their student loan interest paid up to the maximum deduction of $2,500. This straightforward method gives you the AGI that you will report on your IRS return, which influences eligibility for credits and further deductions. Although AGI is typically referred to as net income, they are not exactly the same. Whereas net income refers to after-tax income, AGI is total taxable income.

Your modified adjusted gross income, or MAGI, is slightly different. It is essentially your AGI with certain adjustments added back to it. To determine your adjusted gross income, start with your gross income. This includes wages or salary from a job, bank account interest, stock dividends and rental property income.

Fidelity Smart Money℠

Free filing of simple Form 1040 returns only (no schedules except for Earned Income Tax Credit, Child Tax Credit and student loan interest). NerdWallet has engaged Atomic Invest LLC (“Atomic”), an SEC-registered investment adviser, to bring you the opportunity to open investment advisory accounts (Automated Investing Account and/or Treasury Account) with Atomic. Brokerage services for Atomic are provided by Atomic Brokerage LLC (« Atomic Brokerage »), member of FINRA/SIPC and an affiliate of Atomic, which creates a conflict of interest. See details about Atomic, in their Form CRS, Form ADV Part 2A and Privacy Policy. See details about Atomic Brokerage in their Form CRS, General Disclosures, fee schedule, and FINRA’s BrokerCheck. We are an independent, advertising-supported comparison service.

Tax tools

Maintaining precise and up-to-date financial records is vital for an accurate AGI calculation, especially for entrepreneurs juggling business and personal finances or nonprofits managing restricted and unrestricted funds. Expert bookkeepers and accountants, such as the team at Milestone, can help ensure that every allowable deduction and exclusion is properly applied and every taxable income stream is carefully tracked. This guidance reduces your risk of errors and IRS penalties, but also frees up time for you to focus on your mission or business growth. Since compiling all income sources and deductions can be intricate, consider utilizing a reputable adjusted gross income calculator or online payroll system. Such tools can streamline data entry, help avoid costly errors, and reduce manual effort, especially when income or deduction categories are complex.

• Pre-tax contributions to traditional 401(k) funds help to reduce your AGI and MAGI taxable income.
• Many U.S. states also use the AGI number from federal returns to calculate how much individuals owe in state income taxes.
• Modified adjusted gross income (MAGI) is adjusted gross income plus certain deductions and tax penalties such as non-taxable Social Security benefits, untaxed foreign income, and tax-exempt interest.
• The AMT was designed to ensure that individuals with higher incomes pay a minimum level of tax, regardless of deductions and credits.
• It’s essential to ensure that the AGI on Form 1040 aligns with other financial records.
• Not all the money that comes into your organization or personal accounts counts toward AGI.

File

The most obvious reason to track and optimize taxable income is to minimize your federal taxes. Taxable income influences the availability and extent of various tax benefits and obligations in ways that differ from AGI or MAGI. While many people primarily focus on taxable income, it’s essential to understand how it fits within the broader context of your financial picture, alongside total income, AGI, and MAGI. Some tax benefits are designed specifically for those with lower or moderate incomes. By adding back specific exclusions, MAGI provides a more comprehensive picture of your disposable income.

There are two scenarios in which alimony payments are not considered gross income. The first is if your divorce agreement was executed after 2018. The second is if your divorce agreement was executed before 2019 but later modified to expressly state that such payments are not deductible for the payer. Also, if you sold any items on eBay, Craigslist, or another online store, you have gained income from profits by selling goods. Gross income also includes net gains on the disposal of assets, such as selling a home or car, or any money obtained through self-employment, consulting, side jobs, and other sources of income. All of these income sources are accounted for on the first few lines of Form 1040 and Part I of Schedule 1.

Chiefs Players Will Save $287,000 in Income Tax by Playing in Brazil Rather Than California

You may qualify for none of these adjustments, in which case your adjustable gross income will be identical to your gross income. Based on your MAGI, you get a different amount for each credit, deduction and income you can exclude from tax. If you need help figuring out your MAGI, or if you have any questions about IRA contribution and income limits, contact a trusted tax professional. To contribute to a Roth IRA, your MAGI must be below the limits specified by the IRS. If you’re within the income threshold, the actual amount you can contribute is also determined adjusted gross income definition by your MAGI. Your contributions are phased out if your MAGI exceeds the allowed limits.