This blog post was originally published on Feburary 17th, 2017 and was updated in 2021. It has been updated again to give more detailed information about adjusted gross income (AGI) and to reflect recent changes to the tax code.
Do you know the most important number on your tax return? It’s probably not the one you’re thinking about. But it affects your income taxes, and your overall finances, more than any other tax-related number.
When you’re doing your taxes, you probably focus on your taxable income and income tax due. But there’s another really important number to look at, and it determines a lot about your tax bill. That number is called adjusted gross income, or AGI.
Along with being the starting point for many of your tax calculations, AGI plays a role in determining your eligibility for most tax deductions and credits. When people talk about deductions or credits getting “phased out,” for example, that phase out is based on AGI.
Most people pay more attention to their taxable income than to their AGI, but AGI is a key factor in getting to your federal taxable income. Many states also use this number as the basis for your state taxable income.
Of course, tax software will take care of all the rules and math for you. But it’s important to know what goes into AGI so you can keep yours as low as possible. With strategic tax planning throughout the year, you may be able to use special adjustments to reduce your AGI. And that will also lower your taxable income and your total taxes due.
How to Calculate AGI
Calculating AGI is pretty straightforward. It starts with your taxable income and then subtracts certain “adjustments to income.”
You start with all of your earnings that are subject to income tax, which include things like:
- All of your W-2 earnings
- Net self-employment income
- Interest and dividends
- Capital gains on investments
- Net rental income
- Unemployment income
- Retirement account withdrawals
All of those income sources get added together to come up with your gross income. Then you subtract all of the applicable adjustments for that tax year. Those adjustments get listed on Schedule 1, Part II, as part of your complete tax return.
Common adjustments to income may include:
- Educator expenses
- Health insurance premiums paid if you’re self-employed
- Half of your self-employment taxes
- Contributions made to self-employed retirement plans (like SEPs)
- Contributions to a traditional IRA
- Contributions to a health savings account (HSA)
- Student loan interest
- Moving expenses for members of the Armed Forces
You’ll add up all of those that apply to your situation to get your total adjustments to income, then subtract that total from your gross income.
The result of that math gives you your AGI.
Be aware that “adjustments to income” do change from time to time, so an item you can deduct to reduce your AGI in one tax year may not be available in another.
Here’s an example of what AGI math looks like for your tax return:
Let’s say you have $50,000 of income from a job, $3,000 from a side gig, and $150 from interest and investment income.
Your total gross income would be $53,150.
Your adjustments include a $2,000 traditional IRA contribution and $2,500 of student loan interest, totaling $4,500.
Your AGI would work out to $48,650 ($53,150 – $4,500). The rest of your tax return flows from there.
How AGI Affects Your Taxes
Several calculations in a typical tax return are based on your AGI. It’s the deciding factor in whether you’ll be eligible to take certain deductions or tax credits. You’ll see that adjusted gross income appears on many different tax forms, not just your main Form 1040.
Your AGI determines whether or not you’ll be able to deduct medical expenses, as the total paid for the year has to clear a hurdle of 7.5% of your AGI before you can deduct anything. Casualty losses for people in federally declared disaster areas must exceed 10% of AGI (plus $100) to be deductible. For these types of deductions, lower AGI means a bigger tax break.
On the other side, you can only deduct charitable contributions up to 60% of AGI, so a higher AGI gets you a bigger tax deduction. These percentages may change from year to year, but they’ll still be based on a percentage of AGI.
Eligibility for some tax credits, such as the Earned Income Tax Credit (EITC) and the Saver’s Credit, is also based on AGI. Unlike deductions that use AGI percentages, tax credits are often available only to taxpayers with AGI below a certain limit.
For example, you can’t take the Saver’s Credit if your AGI exceeds $39,500 for single filers or $79,000 for married filing jointly (for tax year 2025).
AGI Affects More Than Taxes
It’s not only the IRS that pays attention to your AGI. Many other institutions use it as well, especially when determining your eligibility for certain income-based programs.
Other times your AGI may come into play include:
- Applying for certain student loan repayment plans
- Getting a loan, especially a mortgage
- Renting an apartment
- Verifying identity (typically on government websites)
- Applying for health insurance in the Marketplace
- Getting car insurance
- Applying for financial aid through FAFSA (Free Application for Federal Student Aid)
While in many of these situations you’ll be asked for additional information, they often use AGI as a starting point.
Modified Adjusted Gross Income (MAGI)
Modified Adjusted Gross Income, or MAGI, is an offshoot of AGI that’s used in different eligibility and tax calculations. For most people, it will be very close to or the same as their AGI. And unlike AGI, this number won’t appear anywhere on your tax return, but it may still affect your taxes.
MAGI affects whether you can make a tax-deductible contribution to a traditional IRA and whether you can contribute at all to a Roth IRA. It also determines if you’ll be able to take advantage of the Premium Tax Credit when you purchase health insurance through the Marketplace.
MAGI also affects eligibility for education credits, both the American Opportunity Tax Credit and the Lifetime Learning Credit. Additionally, the MAGI also comes into play if you’re applying for certain benefits, including Medicaid and Children’s Health Insurance Program (CHIP).
The MAGI calculation differs depending on what it’s being used to figure out. For example, MAGI for the Premium Tax Credit starts with AGI and adds on foreign earned income, tax-exempt interest, and nontaxable Social Security benefits. MAGI for Roth IRA contributions starts with AGI and adds back IRA deductions, then subtracts any income reported for converting an IRA to a Roth IRA (including rollovers from a workplace plan into a Roth IRA).
Luckily, all of these rules and calculations are built into tax software, so you don’t have to figure it out on your own. But it’s still good to know what you’re working with.
AGI By the Numbers
According to the IRS, the average AGI in the US for the 2022 filing year (the most recent currently available in September 2025) was $93,964. But that includes everyone who filed, and it varies widely based on things like home state and filing status (married or single, for example).
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