Adjusted Gross Income
A taxpayer's total gross income minus specific above-the-line deductions allowed by the IRS, serving as the key income figure on Form 1040 and the basis for calculating eligibility for many credits, deductions, and tax provisions.
Adjusted Gross Income (AGI) is arguably the most important number on your federal tax return because it is used as the starting point for dozens of subsequent calculations. It appears on Line 11 of Form 1040 and is computed by subtracting 'above-the-line' adjustments from total gross income. These adjustments are subtracted before you even get to the standard or itemized deduction, making them available to every taxpayer regardless of whether they itemize.
Common above-the-line adjustments that reduce AGI include contributions to traditional IRAs (subject to income limits for those covered by a workplace plan), contributions to Health Savings Accounts (HSAs), the deductible portion of self-employment tax, self-employed health insurance premiums, student loan interest (phased out at higher incomes), educator expense deductions, and alimony paid under pre-2019 divorce agreements.
AGI is not the same as taxable income. Taxable income is AGI minus either the standard deduction ($15,000 for single filers and $30,000 for married filing jointly in 2025) or itemized deductions, and minus any qualified business income deductions. AGI is a higher number than taxable income for most taxpayers.
The critical importance of AGI for investors lies in its role as the threshold or phase-out trigger for numerous tax provisions. The Net Investment Income Tax applies when MAGI (modified AGI) exceeds $200,000/$250,000. The traditional IRA deduction phases out between $79,000 and $89,000 of MAGI for single filers covered by a workplace plan in 2025. Roth IRA contribution eligibility phases out between $150,000 and $165,000 for single filers. Medicare Part B and Part D premium surcharges (IRMAA) are based on MAGI from two years prior.
Strategies that reduce AGI — such as contributing to a 401(k) or HSA, realizing capital losses, or making charitable contributions via qualified charitable distributions from an IRA — can cascade through the return to unlock other tax benefits, reduce NIIT exposure, and lower premium surcharges.