Adjusted gross income (AGI)
Also called MAGI (modified AGI, a related figure)
Total income minus certain specific adjustments, such as deductible IRA and HSA contributions; it is the starting point for many tax calculations.
What it means
Adjusted gross income starts with gross income, including wages, interest, dividends, business income and capital gains, then subtracts a set list of adjustments, sometimes called above-the-line deductions. Examples include deductible traditional IRA contributions, HSA contributions made outside payroll, student loan interest and half of self-employment tax.
AGI matters well beyond the tax return line itself. Eligibility for many credits and deductions, the ability to contribute to a Roth IRA, and some health insurance subsidies are based on AGI or a modified version of it. Taxable income is then found by subtracting the standard or itemized deductions from AGI.
Formula
AGI = Gross income − Adjustments to income
- Gross income = all taxable income from every source
- Adjustments = specific deductions allowed before the standard or itemized deduction
Example
Suppose someone has $60,000 of gross income, contributes $5,000 to a deductible traditional IRA and $2,000 directly to an HSA. Their AGI is $60,000 − $5,000 − $2,000 = $53,000.
How it’s used
- Checking eligibility for credits and Roth IRA contributions
- Calculating taxable income
- Applying for income-based programs
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.