Adjusted gross income

Before you rely on it

What to check

Take the AGI line off the return itself. A salary figure is not it.

The common error

Where people go wrong with adjusted gross income

Working from gross pay. Pre-tax retirement contributions, HSA deposits and self-employment adjustments have already come out. So the number people quote from memory is usually thousands too high and every threshold they check against it is answered wrong.

Worked through

Adjusted gross income in plain numbers

A single filer earns $90,000 in wages and interest. During the year they put $3,000 into a deductible IRA, pay $1,500 in student loan interest and add $2,000 to a health savings account outside payroll; each of those is an adjustment, subtracted before anything else. Adjusted gross income lands at $90,000 − $3,000 − $1,500 − $2,000, or $83,500; the deduction comes next, then the tax. But the credits and phase-outs that look at income read the $83,500 line, not the salary. Every dollar of adjustment shrinks that reading, whatever the rule behind it happens to be. Change one adjustment by $1,000 and the number every threshold sees moves by exactly that much.

Easily confused

Adjusted gross income and its neighbours

People swap AGI for gross income, taxable income and modified AGI. Gross income is everything received before any adjustment. Taxable income is what remains after the standard or itemized deduction, so it sits lower. AGI is the middle figure: after adjustments, before deductions. Modified AGI starts from AGI and adds certain items back, and every benefit defines its own list. One person can therefore hold four income figures in a single year, all correct, all different; the habit that saves trouble is simple; read the definition attached to the specific credit or limit you are testing, then find that exact line on the return.

In real decisions

Where adjusted gross income turns up

AGI decides eligibility more often than any other line on a return. Retirement contribution limits can phase out against a version of it. Education credits and the size of some premium subsidies key to it; the deduction for medical expenses is measured as a share of it; lenders sometimes read it straight off your return when they size a mortgage. A parent filling in student aid forms copies it across from the tax return. Because so many rules hang from one line, a planning move that lowers AGI can help in several places at once. That is why people talk about it far more than about taxable income.

Know the edges

Where adjusted gross income stops being reliable

AGI moves when income lands in a different year, so the timing of a bonus or a sale can shift it. Its definition and the thresholds tied to it change with tax law, often every year; a calculator can estimate it from the inputs you supply, but it cannot know about a corrected form or an amended return; treat any estimate as a planning figure. Confirm the exact line on the filed return, or with a qualified tax preparer, before you make a decision that depends on it.