1. What is Adjusted Gross Income (AGI)?

Adjusted Gross Income (AGI) is your total gross income minus specific adjustments. It's a key figure on your tax return that determines your eligibility for many tax deductions and credits.

2. How AGI is Calculated

The basic AGI formula is:

Where:

• Gross Income — All income from all sources before any deductions
• Adjustments — Specific deductions allowed by the IRS (also called "above-the-line" deductions)

Explanation: AGI serves as the foundation for calculating your taxable income after you've taken all allowable adjustments to income.

3. Importance of AGI

Details: Your AGI affects your eligibility for many tax benefits including IRA contributions, education credits, and the earned income tax credit. Many states also use federal AGI as the starting point for state tax calculations.

4. Using the Calculator

Tips: Enter your total gross income and all allowable adjustments. The calculator will compute your AGI, which is typically found on line 11 of Form 1040.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between AGI and taxable income?
A: AGI is calculated before standard or itemized deductions and exemptions are subtracted to arrive at taxable income.

Q2: What are common adjustments to income?
A: Common adjustments include educator expenses, student loan interest, alimony payments (for certain years), and contributions to traditional IRAs.

Q3: Can AGI be higher than gross income?
A: No, AGI is always equal to or less than gross income since you can only subtract adjustments.

Q4: Why is AGI important for health insurance?
A: The Affordable Care Act uses modified AGI (MAGI) to determine eligibility for premium tax credits and cost-sharing reductions.

Q5: Where can I find my AGI from last year?
A: Your prior year AGI is on line 11 of your Form 1040. The IRS also provides it if you need it for identity verification.