How to Calculate Adjusted Gross Income (AGI) for Tax Purposes

Andre McNeil, CFA, works as an associate with Goldman Sachs. He has 7+ years of experience in the financial services industry.

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

Ryan Eichler holds a B.S.B.A with a concentration in Finance from Boston University. He has held positions in, and has deep experience with, expense auditing, personal finance, real estate, as well as fact checking & editing.

Calculating your adjusted gross income (AGI) is one of the first steps in determining your taxable income for the year. You can determine your tax liability for the year after you've identified your adjusted gross income.

You might want to determine whether you have to file a tax return for the year before you calculate your AGI. The Internal Revenue Service (IRS) provides an interactive tax assistant that can help you do that. The IRS recommends that you do so, however, even if you are not required to file a tax return. You may be eligible for a tax refund if you paid income tax or you may be eligible for certain refundable credits.

Key Takeaways

• The first step in computing your AGI is to determine your total gross income for the year.
• Your total gross income includes your salary in addition to any earnings from self-employment and any other income reported on 1099 forms such as investment dividends and retirement income.
• You can subtract certain amounts from your total income to arrive at your final AGI.
• Teachers can deduct some unreimbursed classroom expenses and self-employed taxpayers can deduct insurance premiums.

How to Calculate Your Adjusted Gross Income (AGI)

Calculating your AGI requires just two steps:

1. Gather all your income statements for taxable income: salary, self-employment, and any income reported on Forms 1099 forms. Add them up to arrive at your total or gross income.
2. Subtract allowable deductions and expenses from the sum.

Gather Your Income Statements

The first step in computing your AGI is to determine your income for the year. Income can be in the form of money, property, or services that you receive during the tax year.

It includes your traditional salary and wages which are reported on Form W-2, any earnings from self-employment ventures, and any other income reported on 1099 forms such as investment dividends and retirement income.

Proceeds from broker and barter exchange transactions are reported on Form 1099-B. Proceeds from real estate transactions are reported on Form 1099-S. Any taxable interest you earned is reported on Form 1099-INT and any investment dividends are reported on Form 1099-DIV. They're all considered part of your taxable income.

Taxable Income

You must also include these sources of taxable income:

• Business income
• Farm income
• Union strike benefits
• Taxable refunds, credits, or offsets of state and local income taxes
• Long-term disability benefits received before minimum retirement age
• Jury duty fees
• Security deposits and rental property income
• Awards, prizes, gambling, lottery, and contest winnings
• Back pay from labor discrimination lawsuits
• Unemployment benefits
• Capital gains
• Severance pay
• Earnings from rental real estate, royalties, partnerships, S corporations, trusts, and license payments

You can calculate your total income by adding all these amounts together.

Income That Isn't Taxed

Some types of income aren't taxed. These sources of income don't count toward your AGI:

• Workers' compensation benefits
• Child support benefits
• Life insurance proceeds unless the policy was turned over to you for a price
• Disability payments
• Capital gains on the sale of your primary home
• Money received as a gift or other inherited assets
• Canceled debts that are intended as a gift to you
• Scholarships or fellowship grants
• Foster care payments
• Money rolled over from one retirement account to another provided that it was executed via a trustee-to-trustee transfer

Subtract Deductions and Expenses

You can subtract certain amounts from your total income to arrive at your final AGI.

• Half the self-employment tax (the employer-equivalent share)
  
• Classroom expenses for teachers and educators up to $300 or $600 if married filing jointly and both spouses are eligible educators
• Self-employed health insurance premiums even if the policy covers your spouse and your dependents
• Contributions to certain retirement accounts
• Student loan interest paid
• Contributions to health savings accounts (HSAs)
• Moving expenses for members of the armed services
• Penalties on early withdrawals of savings
• Certain business expenses of reservists, performing artists, and fee-basis government officials
  

Be careful when figuring the amounts for these categories because special requirements must be met to claim them.

Modified AGI (MAGI) vs. AGI

A common mistake is to use AGI in cases where the modified AGI (MAGI) should be used instead.

Your MAGI is your adjusted gross income with some deductions added back. Your AGI is used to determine the amount of income tax you owe and certain credits for which you're eligible. Your modified AGI is used to determine eligibility for other tax issues such as deducting contributions from a traditional IRA and eligibility to contribute to a Roth IRA.

Work With a Professional

It might be more practical to use the services of an experienced tax professional unless you have the time and aptitude to follow the IRS instructions and conduct any necessary research. Hiring a tax professional may cost you more but it could be well worth it considering the time saved and the frustration prevented from trying to figure out all the rules on your own.

The cost of a tax professional might also be offset by tax credits or other savings they might find for you.

What Is My Adjusted Gross Income (AGI)?

Adjusted gross income or AGI is your total income minus deductions you're eligible to take or "adjustments to income," as the IRS calls them. Gross income includes wages, dividends, capital gains, retirement income, and rents. Deductions might include self-employed health insurance premiums, student loan interest you've paid, and contributions to certain retirement accounts.

How Do I Determine My Adjusted Gross Income (AGI)?

You'll arrive at your adjusted gross income if you add up your total income and then subtract the deductions you're eligible for and entitled to claim.

Can I Get My Adjusted Gross Income (AGI) From My W-2?

No, your AGI doesn't appear on your W-2 form. Your AGI includes amounts from your W-2 but there are additional components that determine your AGI.

The Bottom Line

Figuring out your AGI might seem like a simple process at first glance but you run the risk of making costly mistakes if you're inexperienced, even if you use the IRS instructions for completing your tax return. Consider having a tax professional review your results to ensure their accuracy even if you complete the process yourself.

Correction - July 19, 2024: This article has been corrected to state that the IRS advises filing a tax return even if you don't have to because you might be eligible for a refund.

1. Internal Revenue Service. "Check if You Need to File a Tax Return."
2. Internal Revenue Service. "About Form W-2, Wage and Tax Statement."
3. Internal Revenue Service. "E-file Forms 1099 With IRIS."
4. Internal Revenue Service. "Additional Income and Adjustments to Income."
5. Internal Revenue Service. "Definition of Adjusted Gross Income."
6. Internal Revenue Service. "Publication 525 (2023), Taxable and Nontaxable Income."
7. Internal Revenue Service. "Self-Employment Tax (Social Security and Medicare Taxes)."
8. Internal Revenue Service. "Topic no. 458, Educator Expense Deduction."
9. Internal Revenue Service. "Topic no. 502, Medical and Dental Expenses."
10. Internal Revenue Service. "Publication 969 (2023), Health Savings Accounts and Other Tax-Favored Health Plans."
11. Internal Revenue Service. "Publication 590-A (2023), Contributions to Individual Retirement Arrangements (IRAs)."

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

A qualified higher education expense is a tax credit for the parents of students attending a college or other post-secondary institution.

A flow-through entity is a legal business entity that passes income to the owners and/or investors of the business. It's sometimes referred to as a disregarded entity.

A filing extension is an exemption made for taxpayers who are unable to file their federal tax return by the regular due date.

A widow(er)'s exemption is one of several forms of state or federal tax relief available to a surviving spouse in the period following their spouse's death.

Tax liability is the amount an individual, business, or other entity is required to pay to a federal, state, or local government.

Section 1341 is a tax credit from the I.R.S. available for taxpayers who have to repay more than $3,000 in wages from a prior year.

• About Us
• Terms of Service
• Dictionary
• Editorial Policy
• Advertise
• News
• Privacy Policy
• Contact Us
• Careers
• EU Privacy

We Care About Your Privacy

We and our 100 partners store and/or access information on a device, such as unique IDs in cookies to process personal data. You may accept or manage your choices by clicking below, including your right to object where legitimate interest is used, or at any time in the privacy policy page. These choices will be signaled to our partners and will not affect browsing data.

We and our partners process data to provide:

Store and/or access information on a device. Use limited data to select advertising. Create profiles for personalised advertising. Use profiles to select personalised advertising. Create profiles to personalise content. Use profiles to select personalised content. Measure advertising performance. Measure content performance. Understand audiences through statistics or combinations of data from different sources. Develop and improve services. Use limited data to select content. List of Partners (vendors)