Adjusted Gross Income (AGI)
Your total income minus a specific set of adjustments — the figure most tax breaks are measured against, not your salary.
What Adjusted Gross Income (AGI) means
Adjusted gross income is gross income reduced by a short list of adjustments the tax code allows before any deduction is taken. It has its own line on Form 1040, and it is the number nearly every other tax calculation refers back to.
The adjustments are called "above-the-line" because they come out whether you itemize or not: deductible traditional IRA contributions, HSA contributions, student loan interest up to $2,500, half of self-employment tax, self-employed health insurance premiums, and educator expenses among them. Contributions to a 401(k) never appear as an adjustment because they were already excluded from the wages on your W-2.
AGI matters far beyond the tax you owe this year, because eligibility for most credits and deductions phases out against it. Roth IRA contribution limits, the child tax credit, the premium tax credit for marketplace health coverage, and the deductibility of a traditional IRA when you have a workplace plan are all keyed to AGI or a close variant. Some thresholds are cliffs rather than slopes, which is what makes a late-year deductible contribution occasionally worth several times its own size.
Modified AGI is AGI with certain items added back, and the maddening part is that "modified" means something slightly different in each provision that uses it. For most filers with ordinary income and no foreign earnings or tax-exempt interest, MAGI and AGI are the same number.
Do not confuse AGI with taxable income. Taxable income is AGI minus the standard or itemized deduction, and it is taxable income — not AGI — that the tax brackets are applied to.
Example
In practice: A filer with $85,000 of gross income who puts $4,000 in an HSA and pays $1,500 of student loan interest has an AGI of $79,500 — and it is that figure, not the $85,000, that decides whether they can contribute to a Roth IRA.
Related terms
Gross Income
Your total pay before any taxes, benefits, or contributions are deducted — the figure lenders and tax rules start from.
Standard Deduction
A flat amount subtracted from your income before tax is calculated, taken instead of itemizing individual deductions.
Tax Credit
A dollar-for-dollar reduction of the tax you owe — worth substantially more than a deduction of the same size.
Marginal Tax Rate
The rate applied to your next dollar of income — the number that matters for almost every tax decision at the margin.
Tax Bracket
An income range taxed at a particular rate — only the income inside that range is taxed at it, not your whole salary.
HSA (Health Savings Account)
A tax-advantaged account paired with a high-deductible health plan, where contributions, growth, and medical withdrawals are all untaxed.
Run the numbers
Income Tax Calculator (Federal Brackets)
Estimate your U.S. federal income tax, marginal and effective rates, and take-home pay — with a bracket-by-bracket breakdown of how your income is taxed.
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