Adjusted Gross Income (AGI) Calculator
Estimate your Adjusted Gross Income (AGI) by entering your various income sources and eligible above-the-line deductions.
Income Sources
Above-the-Line Deductions
Understanding Your Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is a crucial figure on your tax return that plays a significant role in determining your tax liability and eligibility for various tax credits and deductions. It's essentially your gross income minus specific "above-the-line" deductions. Understanding how to calculate your AGI is fundamental for effective tax planning.
What is Adjusted Gross Income (AGI)?
AGI is a preliminary calculation of your income before you apply standard or itemized deductions. It serves as the baseline for many other tax calculations. The formula is straightforward:
Gross Income – Above-the-Line Deductions = Adjusted Gross Income (AGI)
Components of Gross Income
Your gross income includes all taxable income you receive from various sources. Common components include:
- Wages, Salaries, and Tips: Income reported on Form W-2.
- Taxable Interest and Dividends: Income from savings accounts, investments, and stock dividends.
- Business Income: Net profit from a sole proprietorship or partnership (reported on Schedule C or K-1).
- Rental and Royalty Income: Net income from rental properties or royalties.
- Capital Gains: Profits from selling assets like stocks or real estate.
- Retirement Distributions: Taxable portions of pensions, annuities, and IRA distributions.
- Unemployment Compensation: Benefits received from unemployment programs.
- Alimony Received: For divorce or separation agreements executed before 2019.
- Gambling Winnings: Income from lotteries, casinos, and other forms of gambling.
What are Above-the-Line Deductions?
Above-the-line deductions are specific deductions that reduce your gross income to arrive at your AGI. They are called "above-the-line" because they are subtracted directly from your gross income on the first page of Form 1040, before you even consider standard or itemized deductions. These deductions are beneficial because they reduce your AGI, which can lower your overall tax burden and potentially qualify you for other tax benefits.
Common above-the-line deductions include:
- Educator Expenses: Up to a certain amount for eligible educators.
- Health Savings Account (HSA) Contributions: Contributions made to an HSA.
- Deductible IRA Contributions: Contributions to a traditional IRA, subject to income limitations and other rules.
- Student Loan Interest Deduction: Up to $2,500 in interest paid on qualified student loans.
- Self-Employment Tax Deduction: One-half of the self-employment taxes paid.
- Alimony Paid: For divorce or separation agreements executed before 2019.
- Penalty for Early Withdrawal of Savings: Penalties incurred for withdrawing funds from a CD or similar account early.
Why is AGI Important?
Your AGI is more than just a number; it's a gateway to many tax benefits and limitations:
- Tax Bracket Determination: While not directly used for tax bracket calculation (taxable income is), a lower AGI often leads to a lower taxable income.
- Eligibility for Credits and Deductions: Many tax credits (like the Child Tax Credit, Earned Income Tax Credit) and deductions (like medical expense deductions) have AGI-based phase-outs or limitations. A lower AGI can make you eligible for more or larger credits/deductions.
- Healthcare Subsidies: Eligibility for premium tax credits under the Affordable Care Act is often based on your AGI.
- 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.
- Student Loan Repayment Plans: Income-driven repayment plans for federal student loans often use AGI to determine monthly payments.
AGI vs. Gross Income vs. Taxable Income
- Gross Income: All income you receive from all sources before any deductions.
- Adjusted Gross Income (AGI): Gross income minus above-the-line deductions. This is the figure our calculator helps you estimate.
- Taxable Income: AGI minus either your standard deduction or your itemized deductions. This is the final amount on which your income tax is calculated.
Example Calculation
Let's consider an individual with the following:
- Wages: $70,000
- Taxable Interest: $300
- Deductible IRA Contributions: $6,000
- Student Loan Interest Paid: $1,500
1. Calculate Total Gross Income:
$70,000 (Wages) + $300 (Interest) = $70,300
2. Calculate Total Above-the-Line Deductions:
$6,000 (IRA) + $1,500 (Student Loan Interest) = $7,500
3. Calculate AGI:
$70,300 (Gross Income) – $7,500 (Deductions) = $62,800 (AGI)
Using the calculator above, you can input your specific income and deduction figures to quickly estimate your AGI. This estimate can be a valuable tool for tax planning throughout the year.