Adjusted Gross Income (AGI) Calculator
Income Sources
Above-the-Line Deductions
Your Estimated Adjusted Gross Income (AGI):
Understanding Your Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is a crucial figure on your tax return. It's your gross income minus specific deductions, often referred to as "above-the-line" deductions. AGI is not just a number; it's a foundational element that impacts many aspects of your financial life, from determining your tax bracket to qualifying for various tax credits and deductions.
What is Gross Income?
Before we get to AGI, let's define gross income. This is the total of all your taxable income sources before any deductions. Common sources of gross income include:
- Wages, Salaries, and Tips: Income from your employer(s).
- Taxable Interest Income: Interest earned from savings accounts, bonds, etc.
- Ordinary Dividends: Income from stock investments.
- Business Income (or Loss): Profits or losses from self-employment or a business you own.
- Capital Gains (or Loss): Profits or losses from selling assets like stocks or real estate.
- Rental and Royalty Income (or Loss): Income from properties you rent out or royalties from intellectual property.
- Other Taxable Income: This can include unemployment benefits, gambling winnings, alimony received (for divorces finalized before 2019), and more.
What are "Above-the-Line" Deductions?
These are specific deductions that you can subtract from your gross income to arrive at your AGI. They are called "above-the-line" because they appear on the first page of the old Form 1040, above the line where AGI was calculated. Unlike itemized deductions, you can claim these even if you take the standard deduction. Common above-the-line deductions include:
- Educator Expenses: Up to a certain amount for unreimbursed expenses paid by eligible educators.
- Health Savings Account (HSA) Deduction: Contributions made to an HSA.
- Self-Employment Tax Deduction (Half): Self-employed individuals can deduct one-half of their self-employment taxes.
- IRA Deduction: Contributions to a traditional IRA may be deductible, depending on your income and whether you're covered by a retirement plan at work.
- Student Loan Interest Deduction: Interest paid on qualified student loans, up to a certain limit.
- Alimony Paid: For divorce or separation agreements executed before 2019.
- Penalty for Early Withdrawal of Savings: If you paid a penalty for withdrawing funds early from a CD or similar account.
Why is AGI Important?
Your AGI is more than just a step in calculating your taxable income. It's used to:
- Determine Eligibility for Tax Credits: Many tax credits, like the Child Tax Credit or Earned Income Tax Credit, have AGI phase-out limits.
- Limit Certain Deductions: Some itemized deductions (e.g., medical expenses) are only deductible if they exceed a certain percentage of your AGI.
- Qualify for Retirement Account Contributions: Your ability to contribute to a Roth IRA or deduct traditional IRA contributions often depends on your AGI.
- Determine Eligibility for Income-Driven Repayment Plans: For federal student loans, AGI is used to calculate your monthly payment.
- Calculate Affordable Care Act (ACA) Subsidies: Eligibility for premium tax credits is based on your household AGI.
How to Use the Adjusted Gross Income Calculator
Our calculator simplifies the process of estimating your AGI. Simply enter your income from various sources and any applicable above-the-line deductions into the respective fields. The calculator will then automatically compute your estimated Adjusted Gross Income. Remember to use accurate figures for the most precise estimate.
Example Calculation:
Let's consider a hypothetical individual, Sarah, to illustrate how AGI is calculated:
- Wages, Salaries, Tips: $70,000
- Taxable Interest Income: $100
- Ordinary Dividends: $200
- Business Income: $5,000
- Capital Gains: $1,000
- Rental and Royalty Income: $0
- Other Taxable Income: $0
- Educator Expenses: $0
- Health Savings Account (HSA) Deduction: $3,000
- Self-Employment Tax Deduction (Half): $0
- IRA Deduction: $6,000
- Student Loan Interest Deduction: $1,500
- Alimony Paid: $0
- Penalty for Early Withdrawal of Savings: $0
Total Gross Income: $70,000 + $100 + $200 + $5,000 + $1,000 = $76,300
Total Above-the-Line Deductions: $3,000 (HSA) + $6,000 (IRA) + $1,500 (Student Loan Interest) = $10,500
Adjusted Gross Income (AGI): $76,300 – $10,500 = $65,800
This calculator provides a helpful estimate, but for official tax purposes, always consult with a qualified tax professional or refer to IRS guidelines.