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Adjusted Gross Income (AGI) – IRS Definition and Explanation

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What Is Adjusted Gross Income (AGI)?

Adjusted Gross Income (AGI) is an IRS-defined measure of income calculated as gross income from all taxable sources minus specific adjustments allowed under the Internal Revenue Code. AGI is the starting point for determining federal income tax, eligibility for deductions, tax credits, and the computation of Modified Adjusted Gross Income (MAGI). The IRS requires taxpayers to report AGI on Form 1040, Line 11.

Gross Income Used in AGI Calculation

According to the IRS, gross income includes all taxable income received during the tax year. Common examples include:

  • Wages, salaries, tips, and other employee compensation
  • Taxable interest and dividends
  • Business and self-employment income
  • Capital gains
  • Taxable retirement distributions
  • Rental income
  • Unemployment compensation
  • Other taxable income reported on Form 1040 and schedules

IRS-Approved Adjustments to Income

The IRS subtracts certain “adjustments to income” from gross income to determine AGI. These adjustments are generally reported on Schedule 1 (Form 1040), Part II. Examples include:

  • Deductible contributions to a traditional IRA
  • Health Savings Account (HSA) contributions
  • Student loan interest deduction
  • Educator expenses
  • Self-employed health insurance deduction
  • Self-employed retirement plan contributions
  • Half of self-employment tax
  • Penalties on early withdrawal of savings
  • Other adjustments allowed under the Internal Revenue Code

AGI Formula (IRS Definition)

The IRS defines AGI as:

AGI = Gross Income – Adjustments to Income

This calculation forms the basis for many IRS limits, income thresholds, and credit phase-outs.

Why AGI Matters

Adjusted Gross Income is used across various parts of the federal tax system. AGI affects:

  • Eligibility for federal tax credits
  • Eligibility for deductions and income phase-outs
  • Determination of standard or itemized deduction effects
  • Calculation of Modified Adjusted Gross Income (MAGI)
  • Annual electronic filing identity verification through prior-year AGI

AGI also serves as the starting point for calculating Modified Adjusted Gross Income (MAGI), which the IRS uses to determine eligibility for Roth IRA contributions, education credits, and the Premium Tax Credit.

Where to Find AGI on the Tax Return

For current IRS tax years, AGI is reported on Form 1040, Line 11. This applies to recent versions of the form, including the 2023–2025 editions.

Official IRS Sources

  • IRS – Definition of Adjusted Gross Income (AGI)
  • IRS – Form 1040 and Instructions
  • IRS – Publication 17: Your Federal Income Tax

 

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