BlogIncome Tax

What is Adjusted Gross Income?


Tax season is almost upon us, and one term that you may frequently see is “Adjusted Gross Income” (AGI). This term is commonly used for many Tax forms. It can be a figure that is difficult to accurately calculate. This article will explain the specific meaning of the term “Adjusted Gross Income” and How it is an important component for a tax return.


A simple way to define AGI is by thinking of it as your total gross income minus certain payments that have been through the year. Gross income consists of wages, dividends, capital gains, and alimony. Once the figure is finalized through the above deductions, then payments such as student loan interest or certain contributions to a retirement account will be subtracted from the total figure. The final result from this calculation will be your adjusted gross income. This is a crucial figure for completing your tax return and it is often a starting point in making your final tax calculation.

Use of AGI

The AGI is an essential figure for completing your final tax return. It is used in the initial phase of calculation, and it is also the figure from where exemptions are subtracted. After allowable exemptions and deductions have been subtracted from the AGI, you will arrive at the final taxable amount. Certain differences exist, however when it comes to State and Federal Tax. State Tax returns will typically require a Federal AGI as a starting point when making any calculations.

Availability of Adjustments

AGI is especially important since it can impact on how much tuition you can pay back. Medical and dental expenses are also influenced by the AGI figure. Not everyone will have access to the same adjustments on their AGI as it will depend on their circumstances. The adjustments available to you will also be dependant on the specific tax form that you file. We note down below how AGI adjustments relate to different Tax forms.

Form 1040

Individuals using Form 1040 will have full access to the various credits and deductions that decrease the final total of AGI.

Form 1040A

Individuals using form 1040A will have access to some of these adjustments to include in their final AGI. The specific adjustments available to an individual can change on a yearly basis, and it is, therefore, to check these entitlements to see if they are still available in the latest Tax year.

Form 1040EZ

Individuals who file their tax through Form 1040EZ are unable to make any new adjustments. Their total gross income and their AGI figure will be the same.

Modified AGI

Additionally, you may be required to calculate a modified AGI (also known as MAGI). This modified AGI calculation will be relevant for an individual that is completing Form 1040 for their tax return and, seeking to itemize any deductions.

These deductions can include interest that has a tax exemption and, certain social security benefits. The total MAGI will act as the figure for determining how various tax savings and benefits can be applied on your return. It will help you to finalize the costings for the tax year and also to plan ahead for the subsequent tax years. It is important to note that Form 1040A does not have a MAGI as this figure will be the same as the original AGI.


You should now have a better idea of how AGI relates to your tax return. It is essential to start planning your return as soon as possible so that all relevant costs can be properly calculated. All individuals should conduct sufficient research in order to figure out the correct Tax return form to use in this tax year; as certain requirements can change on a yearly basis.


Download or Check Above Forms

Form 1040Download Link
Form 1040ADownload Link
Form 1040EZDownload Link


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