A key metric in the US income tax system, adjusted gross income (AGI) determines your eligibility for most federal tax benefits. It is calculated before you apply the Standard Deduction or Itemized Deductions. Gross income includes wages, salaries, tips, interest, dividends, capital gains, business income, rental income, unemployment benefits, and taxable Social Security benefits.
How AGI Is Calculated
AGI is gross income minus specific above-the-line adjustments. These deductions are available regardless of whether you itemize:
- Retirement: Contributions to Traditional Individual Retirement Accounts (IRAs) (limits: $7,500 for 2026) and SEP/SIMPLE plans.
- Health: Health Savings Account (HSA) contributions.
- Education: Student loan interest (up to $2,500) and educator expenses (up to $300).
- Taxes: 50% of self-employment tax and self-employed health insurance premiums.
Why AGI Is Critical
Your AGI acts as the threshold for most federal tax benefits:
- Itemized Deduction Floors: Certain deductions only count if they exceed a percentage of your AGI (e.g., medical expenses must typically exceed 7.5% of AGI).
- Charitable Contribution Ceilings: For 501(c)(3) donations, you are generally limited to deducting cash gifts up to 60% of your AGI.
- Credit Phase-outs: Tax credits like the Child Tax Credit and Earned Income Tax Credit (EITC) begin to decrease once your AGI hits specific levels.
- State Tax Baseline: Most states use your Federal AGI as the starting point for calculating state-level income tax.
AGI vs. MAGI vs. Taxable Income
- AGI: Gross income minus specific adjustments. Determines eligibility for most credits/deductions.
- MAGI: AGI with certain deductions (like student loan interest) added back. Determines Roth IRA eligibility and Affordable Care Act (ACA) health subsidies.
- Taxable Income: AGI minus the Standard Deduction or Itemized Deductions. The final number used to calculate your Tax Bracket.
Key 2026 Reference Data
- Standard Deduction (2026): $16,100 (Single) / $32,200 (Married Filing Jointly).
- Traditional IRA Limit (2026): $7,500 (plus $1,100 catch-up for age 50+).
Additional Acronyms for AGI
- AGI - Artificial General Intelligence
