How adjusted gross income works
Your AGI is the income you report, minus any tax deductions, on your federal tax return. Some states require you also to report your AGI on your state tax return.
Your AGI is different from your modified adjusted gross income (MAGI). MAGI is your adjusted gross income with certain deductions added back in, such as student loan interest and IRA contributions.
Instead of calculating taxable income like AGI, the IRS uses MAGI to determine if a taxpayer qualifies for specific tax credits or deductions.
How to calculate your AGI
To calculate AGI, start with your total gross income, then subtract eligible “above-the-line” deductions such as certain retirement contributions, student loan interest, HSA contributions and educator expenses.
Gross income – adjustments to income = AGI
You can calculate your AGI the old-fashioned way, but there’s tax software that will do the work for you. After you submit information like your W-2, the program will review your income and calculate your total AGI. It can then prepare your Form 1040, including Schedule 1, and even file your taxes.
1. Add up income sources
Determine your gross income by adding up all sources of income for the year. For married taxpayers filing jointly, include both spouses.
The IRS considers several types of income sources as part of your gross income, while other types do not qualify.
Qualifying gross income
- Wages and side income
- Tips
- Interest
- Dividends
- Capital gains
- Business income
- Retirement income
- Unemployment benefits
- Social Security benefits
Non-qualifying gross income
- Alimony
- Educator expenses
- Some business expenses
- Deductible HSA contributions
- Deductible IRA contributions
- Employer-plan contributions
- Military only moving expenses
- Deductible self-employment taxes
- Retirement contributions
- Student loan interest
The IRS publishes a list of recognized income sources in Part I of Schedule 1, the Additional Income and Adjustments to Income form. This must be attached to Form 1040, the U.S. Individual Income Tax Return form.
2. Subtract your above-the-line deductions
An above-the-line deduction is a tax adjustment to income that you subtract from your gross income.
Examples of above-the-line deductions include these expenses.
| Type of deduction | Examples |
|---|---|
| Self-employment deductions | Health insurance deduction, retirement contributions to self-employed plans |
| Education deductions | Qualifying student loan interest, educator expenses |
| Travel deductions | Eligible military moving expenses |
| Other qualifying deductions | HSA deductions, savings early withdrawal penalties |
Subtract these deductions before applying the standard deduction or any itemized deductions. While adjustments reduce income to calculate your AGI, tax deductions are later applied after calculating your AGI to determine taxable income.
Therefore, your AGI is just a stop along the way to finding your final taxable income.
3. Add up adjustments to income
Add together any IRS-recognized adjustments to income. Some of the adjustments or expenses that can reduce your total taxable income include:
- Student loan interest
- Educator expenses
- Health savings account (HSA) deductions
- Alimony paid
Qualifying taxpayers can also deduct some health insurance premiums from their adjusted income. For example, self-employed health insurance is an important adjustment.
A self-employed individual can deduct 100% of medical, dental and qualified long-term care insurance premiums. These count as an above-the-line deduction, reducing both your AGI and MAGI. You report this on Schedule 1 of your Form 1040.
4. Subtract adjustments to income
Next, subtract your total adjustments from your gross income to get your AGI. Adjustments to income are listed in Part II of Schedule 1.
Keep in mind that your AGI may be zero or negative.
AGI calculation example
You can calculate and report your adjusted gross income in just a few steps.
- Calculate gross income: $71,000
- Wages: $60,000
- Side gig: $6,000
- Dividends: $5,000
- Add adjustments to income: $2,750
- Educator expenses: $1,000
- Eligible business expenses: $1,750
- Subtract income from adjustments:
- $71,000 gross income – $2,750 total adjustments to income = $68,250
Therefore, your total adjusted gross income is $68,250. When filing taxes, report this on line 11 of Schedule 1 on Form 1040.
Expanded examples of taxable income and adjustments
This is a calculation walkthrough showing the progression from gross income to taxable income, including your adjusted gross income.
- Calculate gross income.
Cara makes $25,000 a year in wages and drives for Uber as a side job, earning an additional $5,000. Her total gross income for the year is $30,000.
- Subtract above-the-line adjustments.
Next, Cara adds up her above-the-line adjustments. She has a $500 health insurance deduction, $600 in student loan interest and $2,000 in Health Savings Account deductions. This totals $3,100.
- Subtract your total adjustments from your gross income to get your AGI.
Once she has her total of $3,100, she subtracts it from her $30,000 gross income, equaling an AGI of $26,900.
- Subtract any standard or itemized deductions from your AGI for your total taxable income.
Cara is single, so she takes the standard deduction of $16,100 and subtracts that from her AGI of $26,900.
This gives Cara a total taxable income of $10,800.
Why is your AGI important?
Your AGI impacts several aspects of your finances, including not only your taxable income but also your eligibility for tax deductions and credits. Some states also use AGI as the basis for calculating state income taxes.
Taxable income
The IRS uses AGI to help determine how much you’ll pay in federal income taxes for the year.
If you lower your AGI, you can reduce how much you’ll pay in taxes. There are several strategies you can use to limit your total tax liability, including paying down student loan interest and increasing contributions to an HSA or a qualified retirement account, such as a 401(k) or an individual retirement account (IRA).
However, it is your taxable income, not your adjusted gross income, that determines your final tax liability. AGI is only one step in calculating your total taxable income. To get your total tax liability, you must use your gross income, minus any above-the-line adjustments to income and either the standard deduction or itemized deductions.
Certain itemized deductions
Your AGI affects how much you can deduct if you itemize.
For example, you can only deduct medical and dental expenses that exceed 7.5% of your AGI. Other itemized deductions include capital losses, charitable donations and the proceeds from a home sale.
Program or credit eligibility
Your AGI determines whether or not you qualify for specific tax credits or assistance programs, including these common AGI-based tax credits:
- Earned Income Tax Credit. The Earned Income Tax Credit (EITC) is for those ages 25 to 65 with low-to-moderate income.
- Child Tax Credit. The Child Tax Credit, Additional Child Tax Credit (ACTC) and Credit for Other Dependents (ODC) are three credits for those with limited income who have children or other dependents.
- Premium Tax Credit. The Premium Tax Credit (PTC) is a refundable tax credit that lowers the monthly payment for qualified health coverage purchased from either the federal Health Insurance Marketplace or a State-Based Marketplace.
- Education credits. There are two types of education credits that will either reduce your tax liability or increase your refund, depending on your MAGI: the American Opportunity Tax Credit and the Lifetime Learning Credit.
“Since many tax benefits have income limits or phaseouts based on your AGI, your eligibility for certain tax deductions and credits depends on that information,” said Armine Alajian, a certified public accountant (CPA) and the founder of the Alajian Group accounting firm. “I always advise folks to do thorough research on the benefits they want to claim to avoid any surprises.”
Free AGI-based filing options
The IRS offers two free filing options for your taxes: guided online tax software and fillable forms.
Online tax software
Qualifying taxpayers with an AGI of $89,000 or less can benefit from guided online tax software. You can choose between multiple IRS partner tax software companies that will guide you through the tax preparation process by asking targeted questions and providing accurate, guaranteed calculations based on your answers. It also includes some free state tax preparation and filing services.
Fillable forms
Also available from the IRS is the IRS Free File tax preparation software. You simply enter your information using the fillable forms, and the instructions will guide you with limited calculations. There are no income eligibility limits to use this free tax benefit.
Prior-year AGI retrieval and e-file verification
When you file your tax return electronically, you will need to sign and validate your electronic return. However, to do this, you must use your prior-year AGI or your prior-year Self-Select PIN.
There are three ways to find your prior-year AGI.
- Records and Status. Log in to your online account and navigate to the Records and Status tab. Look up the prior year’s Form 1040, U.S. Individual Income Tax Return, and find Line 11 for last year’s AGI.
- Tax Records. You can also find your AGI under the Tax Records tab.
- Mail. You can request a free tax return transcript for the previous year. Either fill out the online form or call the automated phone line at 800-908-9946 for your copy.
First-time filers over the age of 16 should enter zero for their AGI.
FAQ
Is adjusted gross income the same as taxable income?
No, adjusted gross income is not the same as taxable income. AGI is your gross income minus any IRS-recognized adjustments. Taxable income is your AGI minus either the standard deduction or your itemized deductions. You need to calculate your AGI first to figure out your taxable income.
Is adjusted gross income before or after taxes?
Adjusted gross income is your gross income minus any adjustments to your income. It’s considered the starting point for calculating your taxes.
Where is your AGI on tax forms?
The spot for your AGI is listed on line 11 of Form 1040, the U.S. Individual Income Tax Return form.
Bottom line
Your AGI impacts the deductions and credits you’re eligible for and ultimately affects your taxable income. If you’re unsure what counts as income or if you need help calculating your AGI, consider working with a tax software program or a tax preparer to help you identify all of your income sources and file your taxes properly.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Internal Revenue Service, “Definition of adjusted gross income.” Accessed June 17, 2026.
- Internal Revenue Service, “Taxable income.” Accessed June 17, 2026.
- HealthInsurance.org, LLC, “Self-employed health insurance deduction.” Accessed June 17, 2026.
- Internal Revenue Service, “Who qualifies for the Earned Income Tax Credit (EITC).” Accessed June 17, 2026.
- Internal Revenue Service, “Child Tax Credit.” Accessed June 17, 2026.
- Internal Revenue Service, “Questions and answers on the Premium Tax Credit.” Accessed June 17, 2026.
- Internal Revenue Service, “Education credits: American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC).” Accessed June 17, 2026.
- Internal Revenue Service, “Education credits: Questions and answers.” Accessed June 17, 2026.
- Internal Revenue Service, “E-file: Do your taxes for free.” Accessed June 17, 2026.
- Internal Revenue Service, “Validating your electronically filed tax return.” Accessed June 17, 2026.
- Internal Revenue Service, “Adjusted gross income.” Accessed June 17, 2026.
