AGI — Adjusted Gross Income — is one of the most important numbers on your tax return. It's not your salary and not your taxable income; it sits in between, and it quietly decides a lot.
What AGI is
AGI = your gross income minus specific "above-the-line" adjustments, such as:
- Traditional 401(k) and IRA contributions
- HSA contributions
- Student-loan interest
- Half of self-employment tax (for 1099 earners)
AGI vs taxable income
Subtract the standard deduction (or itemized deductions) from AGI and you get taxable income — the number your tax brackets actually apply to. So: gross → (adjustments) → AGI → (deduction) → taxable income.
Why AGI matters beyond your tax bill
AGI (and a variant, MAGI) is the gatekeeper for many credits and limits — eligibility for Roth IRA contributions, education credits, and various deductions all phase out based on AGI. Lowering AGI (e.g., via a 401(k) or HSA) can unlock benefits, not just cut tax.
See the effect
Add pre-tax deductions in the paycheck calculator and watch your federal tax drop — that's AGI shrinking in action. For which deductions lower what, read pre-tax vs after-tax deductions.