Adjusted Gross Income (AGI): What It Is, Why It Matters

You’re likely to see the phrase “adjusted gross income,” or AGI, when you’re doing your taxes. Here’s why it matters:

Figuring your AGI is a crucial step on the path to calculating your taxable income and, in turn, your tax bill.
Your AGI determines your eligibility for a variety of tax deductions and tax credits. (Sometimes, your modified adjusted gross income comes into play.)
Your AGI may come up in other financial interactions, such as when you’re applying for a loan.

So let’s demystify this term.

Put simply, your adjusted gross income is your gross income minus a handful of items. Gross income is your wages before any taxes or other deductions are taken out. To calculate adjusted gross income, you subtract from your gross income certain items known as adjustments, or above-the-line deductions.

How to calculate AGI

To calculate your adjusted gross income, or AGI, first add up all of your sources of income to get your total gross income. In addition to your salary or wages, gross income includes dividends, interest, government benefits, retirement distributions, capital gains and more.

Once you have your total gross income, you then subtract any adjustments, also known as above-the-line tax deductions. Above-the-line deductions are tax breaks you can claim even if you don’t itemize your deductions.

Examples of above-the-line tax breaks include deductions for:

If you look at Part II of Schedule 1, where above-the-line deductions are entered, you can see a list of these adjustments. (By the way, Part I of that schedule has a list of types of income you need to include in gross income.)

Once you’ve entered all of the adjustments you qualify for on Schedule 1, you enter the total dollar amount on the 1040 form (on line 10 on the 2024 form), and then you subtract that amount from your total (or gross) income to come up with your AGI.

The IRS provides detailed instructions on how to fill out your tax return (see these Form 1040 instructions). Also, any tax software will walk you through this process.

Above-the-line deductions are subtracted from your gross, or total, income to calculate your AGI, while other deductions — either those that do require you to itemize or the standard deduction — are subtracted from your AGI to come up with your taxable income.

To recap: You start with your gross, or total, income, then subtract any above-the-line deductions you might qualify for, and that results in your adjusted gross income. The next step in the tax-filing process is to subtract from your AGI either the standard deduction or your total itemized deductions, to get your taxable income. Your taxable income is the dollar amount that your tax rate applies to.

Money tip:

Most taxpayers claim the standard deduction rather than itemizing. For the 2025 tax year, the standard deduction is worth $15,000 if you’re single, $22,500 if you’re a head of household filer and $30,000 if you’re married filing jointly. Generally, your deductible expenses need to add up to more than this amount for it to make financial sense to itemize.

Keep in mind that many of the above-the-line deductions (those tax benefits that you use in calculating your AGI) have limits. The deduction for student loan interest, for example, is capped at $2,500 and the deduction for educator expenses has a $300 limit.

Keep in mind:

If you’re an employee contributing to a pre-tax workplace retirement plan such as a 401(k), those contributions are subtracted directly from your gross pay in each paycheck. You don’t need to enter them as a deduction on your tax return.

Why your AGI matters

Your AGI is an important number to know because it provides a comprehensive view of your finances. Once you know your AGI, you can then subtract the standard deduction or your itemized deductions to get at your taxable income. (Some taxpayers may also reduce their AGI by the qualified business income deduction, if they qualify, to calculate their taxable income.)

Your AGI also determines whether you’re eligible for certain tax deductions and tax credits. For example, to deduct out-of-pocket medical and dental bills (a deduction that does require you to itemize), those expenses must exceed 7.5 percent of your AGI; you can deduct only the amount that exceeds 7.5 percent of your AGI.

Why modified adjusted gross income (MAGI) matters

Another measure of your income is your modified adjusted gross income, or MAGI, which is your AGI after adding back in certain tax deductions. MAGI is used to measure your eligibility for a variety of tax credits and deductions. The modified adjusted gross income calculation generally adds items back into your income, such as the foreign earned income exclusion, student loan interest deduction or some types of tax-exempt bond interest.

However, the specific MAGI calculation varies depending on which tax credits and deductions you’re looking at. For example, calculating your MAGI for the purposes of determining Roth IRA eligibility is slightly different than calculating MAGI for determining whether your traditional IRA contribution is deductible.

For retirees, MAGI is a big deal because it determines insurance premiums for Medicare Part B and prescription drug coverage. Generally, the higher your MAGI, the higher the premium you’ll pay for Medicare. This is determined by looking back two tax years — meaning that your 2025 Medicare premiums and prescription drug costs are based on your MAGI in 2023.

How to find AGI on your tax return

Each person’s AGI is unique. You can find your AGI on your Form 1040 tax return. For the 2024 tax year (for tax returns filed in 2025), AGI is on line 11 of the 1040.