What is adjusted gross income (AGI), and why does it matter?
Adjusted gross income, or AGI, is your total gross income (before taxes) minus certain tax deductions, known as adjustments.
Gross income includes wages, dividends, interest, government benefits, retirement distributions, capital gains and more. To calculate adjusted gross income, you subtract from gross income any above-the-line deductions, or adjustments, you may qualify for, such as deductible IRA contributions, educator expenses, student loan interest or health savings account contributions, among others.
How to find adjusted gross income (AGI) on your tax return
Each person’s AGI is unique. You can find your AGI on line 11 of your Form 1040 tax return.
How to calculate adjusted gross income (AGI)
To calculate your adjusted gross income, or AGI, simply add up all of your sources of income to get your total gross income, then subtract any adjustments, also known as above-the-line tax deductions. Above-the-line deductions are tax breaks you can claim even if you don’t itemize your deductions.
The IRS provides detailed instructions on how to fill out your tax return (Form 1040 and Schedule 1, where above-the-line deductions are entered) and any tax preparation service can walk you through this process.
Above-the-line deductions are subtracted from your income to calculate your AGI (you don’t have to itemize to claim these adjustments), while other deductions — those that do require you to itemize — are subtracted from your AGI to come up with your taxable income.
Most taxpayers claim the standard deduction rather than itemizing. For the 2024 tax year, the standard deduction is worth $14,600 if you’re single and $29,200 if you’re married filing jointly. Generally, your deductible expenses need to add up to more than this amount for it to make financial sense to itemize.
But a handful of above-the-line deductions are available, even for people who claim the standard deduction, including deductions for student loan interest, educator expenses, IRA contributions, health savings account contributions and self-employed health-insurance premiums.
Many tax deductions have limits. The deduction for student loan interest, for example, is capped at $2,500 and the deduction for educator expenses has a $300 limit. (Both of these deductions are available even if you don’t itemize.)
Keep in mind that if you’re an employee contributing to a pre-tax workplace retirement plan such as a 401(k), those contributions are subtracted directly from your gross pay in each paycheck. You don’t need to enter them as a deduction on your tax return.
Why your adjusted gross income (AGI) matters
Your AGI is an important number to know because it provides a comprehensive view of your finances. Once you know your AGI, you can then subtract the standard deduction or your itemized deductions to get at your taxable income. (Some taxpayers may also reduce their AGI by the qualified business income deduction, if they qualify, to calculate their taxable income.)
Your AGI also determines whether you’re eligible for certain tax deductions and tax credits. For example, to deduct out-of-pocket medical and dental bills, those expenses must exceed 7.5 percent of your AGI; you can deduct only the amount that exceeds 7.5 percent of your AGI.
Modified adjusted gross income (MAGI)
Another measure of your income is your modified adjusted gross income, or MAGI, which is your AGI after adding back in certain tax deductions. MAGI is used to measure your eligibility for a variety of tax credits and deductions. The modified adjusted gross income calculation adds items back into your income, such as the foreign earned income exclusion, student loan interest deduction and some types of tax-exempt bond interest.
The specific MAGI calculation may vary, depending on which tax credits and deductions you’re looking at. For example, calculating your MAGI for the purposes of determining Roth IRA eligibility is slightly different than calculating MAGI for determining whether your traditional IRA contribution is deductible.
For retirees, MAGI is a big deal because it determines insurance premiums for Medicare Part B and prescription drug coverage. Generally, the higher your MAGI, the higher the premium you’ll pay for Medicare. This is determined by looking back two tax years — meaning that your 2025 Medicare premiums and prescription drug costs are based on your MAGI in 2023.
