What Is Adjusted Gross Income (AGI)?

Adjusted gross income (AGI) is income the IRS counts after you subtract a short list of allowed adjustments. It’s usually a little lower than everything you earned and higher than the amount you’re actually taxed on.

That in-between is why AGI shows up so often. The IRS uses it as the starting point for your tax bill, and student loan servicers and health insurance marketplaces use it to decide what you pay. If a form is asking for yours, it’s a specific number already printed on your federal tax return, which means you don’t have to recalculate it.

What is adjusted gross income?

Adjusted gross income is your gross income minus your adjustments to income. The IRS defines AGI as your total taxable income minus certain adjustments.

Here’s what those two main terms mean:

• Gross income is the taxable income you received during the year from every source. That includes wages, tips, interest, gig and self-employment profit, unemployment benefits, and taxable retirement withdrawals.
• Adjustments to income are specific expenses the tax code lets you subtract before anything else. People often call them above-the-line deductions, because they come off before the AGI line on your return.

You can claim adjustments whether you itemize or not. That’s what makes them different from deductions like home loan interest or charitable gifts, which only count if you itemize.

Read more >> Gross Income vs. Net Income: What’s the Difference?

How to calculate your AGI

You find your AGI by adding up your taxable income, then subtracting your adjustments. Tax software does this for you, but knowing the math helps you check the result and see why your AGI may be lower than your salary.

Start with gross income

Add up every source of taxable income for the year. Your W-2 covers your job, and 1099 forms cover things like bank interest, gig work, and unemployment benefits.

One thing people often miss: the wages on your W-2 may already be lower than your salary. Pretax payroll deductions, such as traditional 401(k) contributions, typically come out before your employer reports taxable wages, so use the number on your W-2.

Subtract above-the-line deductions

Next, subtract any adjustments you qualify for. They’re listed on Schedule 1 of Form 1040, and common ones include:

• Deductible student loan interest. You can deduct up to $2,500, or the interest you actually paid if that’s less, and you don’t need to itemize.
• Deductible contributions to a traditional IRA.
• Contributions you made yourself to a health savings account (HSA).
• Part of the self-employment tax you paid, if you work for yourself.
• Classroom supplies paid for by eligible teachers (the educator expense deduction).

Many adjustments have income limits, and some shrink as your income rises. Your tax software or the Schedule 1 instructions will tell you how much you can claim.

Example: Calculating your AGI

Say you earned $43,500 at your job last year, plus $1,100 in interest from a savings account. You also paid $900 in student loan interest and put $1,000 into a traditional IRA that you can deduct. Here’s how those numbers add up to your AGI.

‍Tips and overtime still count toward your AGI. Starting with 2025 returns, you may be able to deduct some of your tips, overtime pay, and car loan interest, plus an extra amount if you’re 65 or older. But those deductions come off after your AGI is figured on Form 1040. They lower the income you pay tax on, not your AGI. So if a form asks for your AGI, use the number on your tax return as it is. Don’t subtract your tips or overtime yourself.

AGI vs. gross income vs. taxable income

Each of these numbers is the one before it minus something. Gross income is everything taxable you earned, AGI is that amount minus your adjustments, and taxable income is AGI minus your standard or itemized deduction (plus a few others).

Here’s how all three look using the numbers from our previous AGI example. To get from AGI to taxable income, you subtract the standard deduction. For tax year 2025, the standard deduction for a single filer is $15,750, so $42,700 minus $15,750 leaves $26,950 in taxable income. For tax year 2026, it rises to $16,100.

None of these numbers is the same as your take-home pay. Take-home pay is what lands in your bank account after taxes and payroll deductions are withheld. AGI is a tax calculation, not a paycheck amount.

What AGI is used for

Many other numbers are measured against your AGI. A lower AGI can mean a smaller tax bill, more tax breaks, and lower payments on some programs.

Tax bracket and deduction eligibility

Your tax bracket is technically set by your taxable income, not your AGI. But because taxable income starts from AGI, every dollar of adjustments lowers the income your bracket applies to.

AGI also acts as a measuring stick for certain deductions and credits. For example, you can deduct only the part of your medical and dental expenses that’s more than 7.5% of your AGI, and only if you itemize. With the $42,700 AGI from our example, the first $3,202.50 of medical bills wouldn’t count.

Other tax breaks phase out as income rises, and many of them use modified AGI (MAGI) instead of AGI. That’s why the same adjustment can save you money twice: once on your tax bill and again by keeping you under a limit.

Student loan and health insurance subsidies

Outside of taxes, AGI shows up most in two places:

• Federal student loan payments. Under the Repayment Assistance Plan, your monthly payment is a percentage of your AGI, up to 10%, divided by 12. The rules for student loan repayment changed in 2026, so check StudentAid.gov or your loan servicer for the plans you’re eligible for.
• Health insurance savings. The Health Insurance Marketplace uses MAGI to decide whether you qualify for premium tax credits, Medicaid, or CHIP. For many people, MAGI is the same as or close to AGI.

Credit-related applications that ask for AGI

Some applications ask for your AGI or a copy of your tax return. Others ask for your gross income or annual income, which may be a different number. If a form isn’t clear, check with the lender about which number they want: your AGI, your gross income, or your take-home pay.

Income isn’t part of your credit report, so your AGI has no direct effect on your credit scores. Lenders get your income from you during the application, then look at it alongside your credit history. A strong income can help you show you can afford a payment, but it doesn’t stand in for a history of paying on time.

Read more >> The Importance of On-Time Payments in Building Credit

You don't have to pay for tax help. The IRS runs Free File for most filers and VITA, which offers free in-person help for people under certain income thresholds, people with disabilities, and limited-English speakers. TCE covers anyone 60 or older. Reach out to 800-906-9887 to find a site, or call AARP Tax-Aide, which runs most TCE sites, at 888-227-7669.

If your situation is more complicated, talk with a CPA or enrolled agent for guidance specific to your situation.

Bottom line

Your AGI is your gross income minus a short list of IRS adjustments, and it’s already on your tax return. Claiming the adjustments you qualify for can trim your tax bill and keep you under income limits for other benefits.

On a credit application, though, your income answers only one question: whether you can afford the payment. Whether you’re approved, and at what rate, also depends on your credit history. Kikoff’s Credit Account reports your on-time payments to all three credit bureaus, so you can build that history in your own name. There’s no credit check to sign up, and plans start at $5 a month.