What Is My Adjusted Gross Income (AGI) and How Do I Calculate It?

You probably know your annual income before taxes, but do you know what your adjusted gross income (AGI) is? AGI is a key metric that’s used by the IRS and some lenders. Knowing your AGI helps you figure out how much you owe in taxes and which tax credits you qualify for.

Want to learn more about your AGI, how it impacts you, and how to calculate adjusted gross income? Follow along as we break down all the details.

 

What is adjusted gross income (AGI)?

Adjusted gross income (AGI) is your gross income minus any adjustments. These adjustments include various expenses that can be subtracted to reduce your taxable income, such as certain business or educator expenses. Your AGI doesn’t include the standard or itemized deduction you claim on your taxes.

Calculating your AGI helps you understand how much you have to pay in taxes. Once you figure out your AGI, you can subtract the standard or itemized deductions to find your taxable income and calculate your tax bill.

Your AGI is also used to determine your eligibility for tax credits, such as the Earned Income Tax Credit. If your AGI exceeds a certain amount, your tax credit may be reduced or you might not be eligible at all. 

There’s also your modified adjusted gross income (MAGI), which is your AGI plus a few additional deductions. Depending on the tax deduction or credit you’re applying for, you may need to calculate your MAGI.

Steps to calculate adjusted gross income

Now that you have a general understanding of AGI and what it’s used for, let’s go through the calculation step-by-step.

Combine all sources of income

The first thing you need to figure out is how much you make before any adjustments. This isn’t as simple as looking at your W-2 to see your wages, tips, and other compensation.

When you’re calculating adjusted gross income, you need to include your wages from your W-2 as well as income from dividends, capital gains, retirement income, and any other business income. The sum of these numbers is your total annual income.

Here are some of the taxable income sources you should include when calculating AGI

1. Business income (including any income from side gigs)
2. Farm income
3. Security deposits and rental income
4. Unemployment benefits
5. Awards, prizes, and lottery and gambling winnings

Let’s say you’re a general contractor, but you also own a few rental properties. When you’re calculating your AGI, you’d need to include your wages from your job as well as any rent payments you receive for your rental properties.

Things like stock dividends and capital gains from selling stocks and other assets are also included in your total income when you calculate your AGI.

Subtract eligible deductions

Since your AGI is your total income minus certain adjustments or deductions, the next step is figuring out which adjustments you can take. This can include things like self-employed health insurance premiums and half of the self-employment taxes you pay.

If you work as an educator, you can deduct up to $300 worth of qualified educator expenses from your gross income. Married couples filing jointly can deduct up to $600 in total if they’re both qualified educators.

Any student loan interest you paid can also be included as an adjustment to your gross income. You can look at the 1040 instructions (Schedule 1) to find out more about additional income sources and adjustments to your income.

These deductions should be subtracted from your total gross income.

Subtract relevant expenses

The next step is subtracting any expenses to figure out your final AGI.

Contributions you make to a health savings account (HSA) can be subtracted when you’re figuring your AGI. Members of the armed services can also subtract moving expenses. Depending on your profession, you may be able to subtract certain business expenses when calculating your AGI. This includes:

• Reservists
• Performing artists
• Fee-basis government officials

Contributions to certain retirement accounts are also considered adjustments to your income. If you face penalties for withdrawing from a savings account or certificate of deposit (CD) early, those can be deducted from your total gross income.

Subtract these expenses, and you’ll have your AGI. You can include additional adjustments to calculate your modified adjusted gross income (MAGI).

Example: How to find AGI

We’ll walk through an example so you can get a better understanding of how to calculate adjusted gross income.

Let’s say you have a salary of $60,000 at your primary job, a part-time job that pays $5,000 yearly, and a rental property that generates $2,000 per month in revenue ($24,000 annually). Your gross income would be $89,000, or the sum of these three numbers.

Next, include any adjustments to your income. You might pay $2,000 per year in student loan interest and contribute the $7,000 yearly limit to a traditional IRA account. That means you have $9,000 in adjustments.

The last step is easy. Just take your gross income of $89,000 and subtract the $9,000 in adjustments to find your AGI. In this example, your AGI would be $80,000.

How to find AGI on W-2

You won’t find your AGI listed on your W-2 anywhere, but your W-2 gives you some of the key information you need to calculate your AGI. Let’s take a closer look at how you can use your W-2 to find your AGI.

Start by looking at the top-right corner of your W-2; this is where all the relevant info is. Here, you’ll see your wages, tips, and other compensation. This is your total gross income as an employee for that year.

Keep in mind that you’ll also need to include any other sources of income you may have, such as interest from bonds, rental income, and any wages you earn from a part-time job.

Once you figure out your gross income from all sources, you can figure out what deductions and expenses you can subtract to calculate your AGI.

Your AGI doesn’t include the standard deduction. If you decide to itemize deductions, those deductions won’t count toward your AGI either.

Types of taxable and non-taxable income

When you’re calculating your AGI, you want to include any taxable income sources. On the other hand, there are various types of non-taxable income that you don’t have to include to find your AGI. Let’s take a look at some of the different types of taxable income in addition to your wages or salary:  

1. Job Income 
2. Business income (including side gigs) 
3. Farm income
4. Jury duty fees
5. Security deposits and rental income
6. Unemployment benefits
7. Severance pay
8. Awards, prizes, and lottery and gambling winnings
9. Union strike benefits
10. Long-term disability benefits
11. Earnings from royalties, partnerships, trusts, and license payments

If you have income from any of these sources, make sure you include them all when you calculate your AGI. Including every source of taxable income is essential if you want to get an accurate number.

While many forms of income are taxable, there are non-taxable forms of income, too:

• Capital gains from selling your primary residence under certain conditions (up to $250,000)
• Child support benefits
• Foster care payments
• Life insurance proceeds
• Money that was received as a gift or inherited
• Retirement account funds rolled over through a trustee-to-trustee transfer
• Scholarships or grants
• Workers’ compensation benefits

Don’t include these sources of income when you figure out your AGI, or you’ll end up with an incorrect, higher number that may exclude you from claiming certain tax credits.  

Common adjustments to income

There are several common adjustments to income, including:

• Educator expenses: Educators can deduct a maximum of $300 in expenses, or $600 for qualifying married couples filing jointly. Educators who contribute to an HSA can deduct up to $300 in educator expenses as well as the sum of all HSA contributions for the year.
• HSA contributions: If you contribute to a health savings account (HSA), you can use those contributions as an adjustment to calculate your AGI.
• Self-employed health insurance premiums: When you pay health insurance premiums as a self-employed individual, you can adjust your income based on the amount you paid.
• Self-employment taxes: You can also adjust your income using half of the amount you paid in self-employment taxes.

If you need help figuring out how to calculate your AGI or finding out if you qualify for a tax credit, consult a TurboTax expert.

Impact of AGI on tax credits and deductions

Your AGI plays a key role in determining whether you qualify for tax credits and deductions. In some cases, you may not be able to claim a tax credit if your AGI exceeds a certain threshold.

With many credits, including the Child Tax Credit, you may only be eligible for a partial credit based on your AGI. Knowing how to calculate your adjusted gross income accurately is crucial if you plan on claiming tax credits and deductions.

Differences between AGI and other income measures

AGI is just one way to measure your income. In addition to your AGI, you can also figure out your gross income, taxable income, and MAGI.

Your gross income is your total income from all sources, including wages, tips, dividends, capital gains, and business and retirement income. This number is used to calculate your AGI and MAGI.

MAGI is similar to AGI, but it includes a few extra adjustments. These include untaxed foreign income, tax-exempt interest, and non-taxable Social Security benefits.

Your taxable income is your AGI minus your itemized or standard deduction. You should always claim the larger deduction to minimize your taxable income.

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.