Tax glossary

Adjusted Gross Income (AGI)

Adjusted Gross Income — what it means, how it works, and a real example, explained without the jargon.

What is Adjusted Gross Income (AGI)?

Adjusted Gross Income is your total income for the year minus a specific set of "above-the-line" adjustments the IRS lets you take before anything else. It's one of the most important numbers on your return because so many other tax breaks are measured against it.

How it works

Start with every dollar of income — wages, freelance profit, interest, dividends, retirement withdrawals — then subtract adjustments like deductible IRA and HSA contributions, half of your self-employment tax, and student-loan interest. What's left is your AGI, which sits on line 11 of Form 1040. It's the launch point for your taxable income and the gatekeeper for credits and deductions that phase out as income rises.

A quick example

Say you earn $80,000 in wages, put $6,000 into a traditional IRA, and pay $1,000 in student-loan interest. Your AGI is $80,000 − $6,000 − $1,000 = $73,000 — even though your gross pay was $80,000.

What people get wrong

A lot of people confuse AGI with taxable income. AGI comes first; you still subtract the standard or itemized deduction after it to get to the number the tax brackets actually touch.

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Frequently asked questions

What does Adjusted Gross Income mean?

Adjusted Gross Income is your total income for the year minus a specific set of "above-the-line" adjustments the IRS lets you take before anything else. It's one of the most important numbers on your return because so many other tax breaks are measured against it.

How does Adjusted Gross Income work?

Start with every dollar of income — wages, freelance profit, interest, dividends, retirement withdrawals — then subtract adjustments like deductible IRA and HSA contributions, half of your self-employment tax, and student-loan interest. What's left is your AGI, which sits on line 11 of Form 1040. It's the launch point for your taxable income and the gatekeeper for credits and deductions that phase out as income rises.

What's the most common mistake with adjusted gross income?

A lot of people confuse AGI with taxable income. AGI comes first; you still subtract the standard or itemized deduction after it to get to the number the tax brackets actually touch.