Adjusted Gross Income (AGI)
Tax Glossary Term
Definition
Adjusted Gross Income is the single most important number on your tax return. It starts with your gross income (wages, salaries, tips, business income, investment income, retirement distributions, and virtually every other source of taxable income) and then subtracts a specific set of 'above-the-line' deductions. These above-the-line deductions include contributions to a traditional IRA, student-loan interest (up to $2,500), the deductible half of self-employment tax, educator expenses, HSA contributions, and alimony payments under pre-2019 agreements. Starting in 2026, the new Schedule 1-A deductions for qualified tips, overtime premiums, and the senior bonus are also subtracted above the line, reducing AGI directly. Your AGI then flows into the calculation of your taxable income (AGI minus either the standard or itemized deduction), and it serves as the gateway for dozens of credits, deductions, and phase-outs throughout the tax code. A lower AGI can qualify you for larger credits like the Child Tax Credit, reduce your Medicare premiums, and keep your OBBBA deductions from phasing out. That is why tax planning often focuses on strategies to lower AGI — such as maximizing retirement contributions or timing income recognition.
Example
W-2 wages: $75,000
Traditional IRA deduction: -$3,000
Deductible half of SE tax: -$7,500
AGI: 64,500