Adjusted Gross Income (AGI) Calculator
Adjustments to Income (Deductions)
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 "above-the-line" deductions. This number is not just a step in calculating your taxable income; it's used for a wide array of purposes, from determining eligibility for certain tax credits and deductions to qualifying for healthcare subsidies and student financial aid.
What is Gross Income?
Gross income is the total of all your income sources before any deductions. This typically includes:
- Wages, Salaries, and Tips: Income from employment.
- Taxable Interest Income: Interest earned from savings accounts, bonds, etc.
- Ordinary Dividends: Income from stock investments.
- Net Capital Gains/Losses: Profits or losses from selling assets like stocks or real estate.
- Business Income (Schedule C Profit): Net profit from self-employment or a small business.
- Rental/Royalty Income (Net): Income from rental properties or royalties after expenses.
- Unemployment Compensation: Benefits received from unemployment.
- Taxable IRA/Pension Distributions: Withdrawals from retirement accounts that are subject to tax.
- Other income sources like alimony received (for divorces before 2019), gambling winnings, etc.
What are "Above-the-Line" Deductions (Adjustments to Income)?
These are specific deductions that reduce your gross income to arrive at your AGI. They are called "above-the-line" because they are subtracted before you even consider standard or itemized deductions. Common adjustments include:
- Deductible IRA Contributions: Contributions to a traditional IRA that meet IRS deductibility rules.
- Student Loan Interest Paid: A deduction for interest paid on qualified student loans, up to a certain limit.
- HSA Contributions (Deductible): Contributions made to a Health Savings Account.
- Deductible Self-Employment Tax (50%): Self-employed individuals can deduct one-half of their self-employment taxes.
- Educator Expenses: Certain unreimbursed expenses paid by eligible educators.
- Other adjustments include self-employed health insurance premiums, penalty for early withdrawal of savings, and alimony paid (for divorces before 2019).
Why is AGI Important?
Your AGI is more than just a number; it's a foundational element of your tax planning. Here's why:
- Eligibility for Tax Credits: Many valuable tax credits, such as the Child Tax Credit, Earned Income Tax Credit, and education credits, have AGI-based phase-out limits. A lower AGI can make you eligible for more credits or a larger credit amount.
- Deduction Limitations: Certain itemized deductions, like medical expenses, are only deductible if they exceed a percentage of your AGI. A lower AGI makes it easier to meet these thresholds.
- IRA Contribution Deductibility: The deductibility of traditional IRA contributions can be limited based on your AGI and whether you or your spouse are covered by a retirement plan at work.
- Healthcare Subsidies: Eligibility for premium tax credits (subsidies) to help pay for health insurance purchased through the Affordable Care Act (ACA) marketplace is determined by your AGI.
- Student Financial Aid: Your AGI is a key factor in calculating your Expected Family Contribution (EFC) for federal student aid programs.
How to Use the Calculator
Simply enter your income amounts and any applicable adjustments into the respective fields. The calculator will then compute your estimated Adjusted Gross Income. Remember, this calculator provides an estimate and should not replace professional tax advice or official tax preparation software. Always refer to IRS guidelines and your specific tax documents for accurate reporting.
Example Calculation:
Let's say you have:
- Wages: $60,000
- Taxable Interest: $150
- Ordinary Dividends: $200
- Net Capital Gains: $500
- Deductible IRA Contributions: $3,000
- Student Loan Interest Paid: $500
Total Gross Income: $60,000 + $150 + $200 + $500 = $60,850
Total Adjustments: $3,000 + $500 = $3,500
Adjusted Gross Income (AGI): $60,850 – $3,500 = $57,350
This AGI of $57,350 would then be used to determine your eligibility for various tax benefits and to calculate your final taxable income.