What Is My Adjusted Gross Income (AGI) and How Do I Calculate It?

Income and Investments Woman calculating adjusted gross income

Many benefits are limited to those people whose income is below a certain level. Certain tax deductions and credits such as the Child Tax Credit and the Earned Income Tax Credit are not solely based on your income but your adjusted gross income. With several different types of income in the world of taxes, you may be asking yourselves what is adjusted gross income and what are the differences between other types of income? 

Most people have an intuitive understanding of the term income: it is the money that comes into your hands each year. However, the term “gross income” is actually a bit narrower than that because some income is partially or fully tax-free, and so it is excluded from taxation and excluded from “gross income.” For example, if you are retired and receiving social security, a portion of your social security payments is not taxable. Likewise, if you invest in bonds issued by your state or its agencies, the income from those bonds aren’t taxable. However, for many of us, our gross income is the same as what we intuitively think of as our income.

On the other hand, adjusted Gross Income (AGI) is calculated by starting with your gross income and reducing it by specific deductions, called “adjustments.” These adjustments are different from Itemized Deductions (ie: property taxes, home mortgage interest, donations, medical, etc.). Sometimes the adjustments taken to calculate AGI are referred to as “above the line deductions” and itemized deductions are referred to as “below the line deductions.”

The most common “above the line” adjustments that reduce income in computing AGI are self-employed health insurance and 50% of self-employment tax for self-employed business owners and independent contractors, IRA contribution deductions, student loan interest, educator expenses, and alimony payments from pre-2019 divorce decrees.

Knowing your AGI can help you figure out whether you qualify for some itemized deductions and other tax benefits. For example, if you can itemize your deductions, your medical expenses are deductible only to the extent they exceed 7.5% of your AGI in 2019 (10% in 2020).

If you make large charitable contributions, your deduction is also limited to a percentage of your AGI. And many states use your federal AGI as a starting point to calculate your taxable income.

Don’t worry about knowing how to figure out your adjusted gross income or knowing if you are eligible for deductions and credits. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your entries. If you have questions you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average of 15 years experience to get your questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish, year round, and can also review, sign, file your return.

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