What Is Adjusted Gross Income (AGI)?
Quick Answer
Adjusted Gross Income (AGI) is your total gross income minus specific above-the-line deductions (also called adjustments). It is one of the most important numbers on your tax return because it determines your eligibility for many tax credits, deduction limits, and benefit thresholds. Think of AGI as the midpoint between your gross income and your taxable income.
How AGI Is Calculated
The formula is:
Gross Income - Above-the-Line Adjustments = AGI
What Counts as Gross Income
- Wages and salary (W-2 income)
- Self-employment income
- Investment income (dividends, capital gains)
- Rental income
- Side hustle income
- Unemployment compensation
- Retirement account distributions
Common Above-the-Line Adjustments
- Contributions to a traditional IRA (up to $7,000 in 2025)
- Student loan interest (up to $2,500)
- HSA contributions ($4,300 individual / $8,550 family)
- Half of self-employment tax
- Educator expenses (up to $300)
- Alimony payments (for divorces finalized before 2019)
Note: 401(k) contributions reduce your W-2 gross income before it even reaches your tax return, so they technically lower gross income rather than appearing as an AGI adjustment. The effect is the same — lower AGI.
Real Example With Actual Numbers
Kevin earns $85,000 as a single filer in New York. He contributes $6,000 to a traditional IRA, pays $2,100 in student loan interest, and contributes $4,300 to his HSA.
| Item | Amount |
|---|---|
| Gross income (salary) | $85,000 |
| Traditional IRA contribution | -$6,000 |
| Student loan interest | -$2,100 |
| HSA contribution | -$4,300 |
| Adjusted Gross Income | $72,600 |
From here, Kevin subtracts the standard deduction of $15,000 to arrive at a taxable income of $57,600. Try the SalaryHog calculator to see your own AGI estimate.
Why AGI Matters So Much
AGI is a gateway number. The IRS uses it to determine whether you qualify for dozens of tax benefits:
- Student loan interest deduction: Phases out between $80,000 and $95,000 AGI (single)
- Traditional IRA deduction: Phases out if you have a workplace retirement plan and your AGI exceeds certain limits
- Roth IRA contributions: Phased out at $150,000-$165,000 AGI (single) in 2025
- Child Tax Credit: Phases out above $200,000 AGI (single) or $400,000 (married)
- Education credits: The American Opportunity Tax Credit phases out above $80,000 AGI
- Medical expense deduction: Only expenses exceeding 7.5% of AGI are deductible
AGI vs MAGI
You may also encounter Modified Adjusted Gross Income (MAGI). MAGI starts with your AGI and adds back certain items like student loan interest deductions, foreign income exclusions, or tax-exempt interest. Different credits and programs use slightly different MAGI calculations. For most W-2 employees without foreign income, MAGI and AGI are identical.
How to Lower Your AGI
Lowering your AGI can unlock tax benefits and reduce your overall burden:
- Contribute to retirement accounts — 401(k), traditional IRA, and 403(b) plans all reduce AGI
- Max out your HSA — If you have a high-deductible health plan
- Track above-the-line deductions — Student loan interest, educator expenses, and self-employment adjustments
- Consider filing status — Married filing jointly can change which AGI thresholds apply
Use the SalaryHog calculator to estimate your AGI and see how changes to retirement contributions affect your take-home pay.