What is Adjusted Gross Income?
The IRS defines adjusted gross income as gross income minus adjustments. Gross income includes wages, dividends, capital gains, business income, retirement distributions and other income. Adjustments, such as deductions for student loan interest or retirement contributions, are subtracted from gross income to determine your AGI.
For taxpayers who are married filing jointly, AGI is the gross income minus adjustments for both spouses. Once AGI is calculated, that amount is used to determine taxable income.
Where to find AGI
Adjusted gross income is not listed on your W-2. To figure out AGI, you must calculate it on your tax return.
The line for AGI is located on the 1040 form. For returns in 2019 and later, you will find AGI listed on line 8B of the 1040. In 2018, the AGI was located on line 7. Prior to 2018, the AGI was listed on line 37 of a regular 1040 form, line 21 on a 1040A form and line 4 on a 1040EZ form. After 2018, the 1040A and 1040EZ forms are no longer used.
To calculate your adjusted gross income, follow the steps below:
- Gather your wage information (W-2, 1099, etc.).
- Get a copy of Form 1040 from the IRS.
- Enter all income information on the 1040.
- Subtract any applicable “above the line” deductions (also called “adjustments to income”). Examples include educator expenses, student loan interest, tuition and contributions to IRA accounts.
- The final amount is your AGI.
If you have self-employment or business income, you will need to figure out those numbers before calculating AGI.
The IRS sets maximum deduction amounts for the following items:
- IRA contributions: $5,500 per individual
- Student loan interest: $2,500
- Employer-provided educational assistance: $5,250
- Educator expenses (K-12 teachers): $250
How to lower AGI
The good news is there are many ways you can lower your AGI and reduce your taxable income. The IRS even recommends a few ways for taxpayers to do this.
Some of the methods for lowering your AGI include:
- Paying student loan interest
- Claiming educator expenses
- Putting money in a qualified retirement savings account, such as a 401(k), IRA or self-employed SEP
What is modified adjusted gross income?
Modified AGI, or MAGI, is your AGI with certain deductions and tax-exempt interest added back into the total. For example, your MAGI may be as simple as your AGI with the deduction for student loan interest payments added back in. For many taxpayers, AGI and MAGI will be the same or very similar. Healthcare.gov provides another more detailed example as MAGI relates to qualifying for healthcare.
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