Standard and itemized deductions are 'below the line' reductions. Adjustments are 'above the line' reductions to income. You can locate your federal gross wages on your W-2 form. Related: 5 Common Examples of Taxable Earned Income Adjusted gross income calculation and examplesĪdjusted gross income is your gross income minus your adjustments. For example, it phases deductions for medical expenses and student loan interest payments out when income exceeds a certain amount. Certain deduction limitations apply if your AGI is over a set amount. AGI is also used to determine state income taxes. Your adjusted gross income is important because it determines your eligibility for tax credits and deductions. Related: What Is Earned Income? Why is adjusted gross income important? The one you file also determines which deductions you may take. Where your AGI is on your tax form depends on the form you file. It is your gross income minus approved adjustments to income, such as work or health care expenses.

What is adjusted gross income?Īdjusted gross income is the number the IRS uses to determine your taxable income for the year.

In this article, we define adjusted gross income, explain how to calculate it and answer some frequently asked questions. Adjusted gross income is one of the many important factors the IRS uses to determine benefits, reimbursements and deduction eligibility. Preparing for your tax deductions ahead of time can reduce your taxable income and leave you with more money in your pocket at the end of tax season. Strategic financial planning encompasses retirement, health care and debt considerations.

Adjusted gross income on w2