Federal AGI, or adjusted gross income, is your total income for the year minus a specific set of deductions the tax code lets you subtract before anything else. It appears on Line 11 of Form 1040, and it is the number the IRS uses as the starting point for nearly every calculation that decides what you owe or what comes back to you.1Internal Revenue Service. Adjusted Gross Income Dozens of credits, deductions, and surcharges use AGI as a threshold, so crossing certain lines can cost you benefits worth thousands of dollars or trigger extra taxes you wouldn’t otherwise owe.
How AGI Is Calculated
The math runs in two steps. First, add up every source of taxable income: wages, salaries, tips, interest, dividends, capital gains, business profits, rental income, retirement distributions, unemployment compensation, and anything else the tax code treats as income.2Internal Revenue Service. Definition of Adjusted Gross Income That total is your gross income.
Second, subtract the above-the-line adjustments the Internal Revenue Code lets you take. These come off before the standard or itemized deduction ever enters the picture. What’s left is your AGI.1Internal Revenue Service. Adjusted Gross Income
Above-the-Line Adjustments That Lower Your AGI
Above-the-line adjustments are valuable because you can claim them whether you take the standard deduction or itemize. They reduce AGI directly, which can unlock more benefits further down the return. The most common ones:
- Half of self-employment tax. If you’re self-employed, you pay both halves of Social Security and Medicare; the employer-equivalent half is deductible.
- Traditional IRA contributions, subject to income limits when you or your spouse are covered by a workplace plan. The 2026 contribution limit is $7,500, or $8,600 if you’re 50 or older.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- Health Savings Account contributions. For 2026, up to $4,400 for self-only coverage or $8,750 for family coverage.4Internal Revenue Service. Revenue Procedure 2025-19
- Student loan interest, up to $2,500 a year, phasing out for single filers with MAGI above $85,000 and joint filers above $175,000.
- Self-employed health insurance premiums, so long as the deduction doesn’t exceed the business’s net profit.
- Educator expenses for eligible teachers and classroom instructors.
- Early withdrawal penalties charged by a bank when you break a CD.
New Deductions for 2025 Through 2028
The One Big Beautiful Bill Act added several temporary above-the-line deductions for tax years 2025 through 2028. Each reduces AGI directly:5Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
- Qualified tips, up to $25,000, for employees and self-employed workers in occupations that customarily receive them. Phases out above $150,000 MAGI single, $300,000 joint.
- Overtime pay, up to $12,500 (or $25,000 joint), covering the premium portion required under the Fair Labor Standards Act. Same phase-outs as tips.
- Interest on a loan for a personal vehicle, up to $10,000. Phases out above $100,000 MAGI single, $200,000 joint.
- A $6,000 deduction for each person age 65 or older, regardless of work status. Phases out above $75,000 MAGI single, $150,000 joint.
AGI vs. MAGI
Many tax provisions don’t actually use AGI. They use Modified Adjusted Gross Income, which starts with AGI and adds back certain items you excluded or deducted. The add-backs change depending on the benefit.6Internal Revenue Service. Modified Adjusted Gross Income
For Roth IRA limits, MAGI equals AGI plus any traditional IRA deduction, student loan interest deduction, and foreign earned income exclusion. For the premium tax credit, MAGI adds back tax-exempt interest and nontaxable Social Security. For most people without foreign income or tax-exempt bond interest, AGI and MAGI are the same number.
How AGI Controls Your Tax Credits
AGI acts as a gate for some of the most valuable credits available. Going slightly over a threshold can shrink or erase a credit you’d otherwise get.
Earned Income Tax Credit
The EITC is fully refundable, meaning it can generate a refund even if you owe no tax. But the AGI limits are firm: cross the threshold for your filing status and number of children and the credit disappears.7Internal Revenue Service. Earned Income and Earned Income Tax Credit (EITC) Tables A modest AGI reduction through an IRA or HSA contribution can be worth thousands if it keeps you under the line.
Child Tax Credit
For 2026, the Child Tax Credit is $2,200 per qualifying child.8Internal Revenue Service. Child Tax Credit The full credit is available at AGI of $200,000 or less ($400,000 married filing jointly). Above those levels, the credit drops by $50 for every $1,000 of excess income. A single parent earning $220,000 with one child loses $1,000 of the credit. The phase-out is gradual, not a cliff.
Premium Tax Credit
If you buy marketplace health coverage, the premium tax credit ties to household income measured against the federal poverty level. For 2026 coverage, households above 400% of the poverty level are generally ineligible. Small changes in projected income can swing the subsidy by hundreds of dollars a month, so estimating AGI carefully at open enrollment matters.
How AGI Limits Your Deductions
Medical and Dental Expenses
If you itemize, unreimbursed medical and dental costs are deductible only to the extent they exceed 7.5% of AGI.9Internal Revenue Service. Topic No. 502, Medical and Dental Expenses At an AGI of $100,000, the first $7,500 in medical bills produces zero deduction. Only the portion above the floor counts. A lower AGI shrinks the floor and lets more of your medical spending become deductible.
State and Local Tax Deduction
The SALT cap was $10,000 under the 2017 Tax Cuts and Jobs Act. The One Big Beautiful Bill Act raised it to $40,000 for taxpayers with MAGI under $500,000 ($250,000 for married filing separately), phasing back down to the old $10,000 floor at higher incomes. Itemized deductions, including SALT, go on Schedule A.10Internal Revenue Service. About Schedule A (Form 1040), Itemized Deductions
Retirement Account Limits
Your MAGI determines whether you can contribute to a Roth IRA and whether traditional IRA contributions are deductible. The 2026 Roth phase-out ranges:3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- Single or head of household: full contribution below $153,000 MAGI, reduced between $153,000 and $168,000, none at $168,000 or above.
- Married filing jointly: full below $242,000, reduced between $242,000 and $252,000, none at $252,000 or above.
- Married filing separately (living with spouse): reduced below $10,000 MAGI, none at $10,000 or above.
The standard 2026 contribution limit is $7,500, with an additional $1,100 catch-up at age 50 or older.
The Net Investment Income Tax
Higher earners face an additional 3.8% tax on net investment income: interest, dividends, capital gains, rental income, and certain passive income. It applies to the lesser of your net investment income or the amount by which MAGI exceeds these thresholds:11Internal Revenue Service. Topic No. 559, Net Investment Income Tax
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
These thresholds are not indexed for inflation, so more taxpayers cross them each year. A single filer with $260,000 in MAGI and $40,000 in investment income owes 3.8% on the lesser figure ($40,000), for $1,520 in extra tax. Above-the-line deductions that pull MAGI down can shrink or eliminate the surtax.
AGI and Medicare Premium Surcharges
Medicare uses your MAGI from two years ago to set Part B and Part D premiums. If your 2024 MAGI exceeds certain levels, you’ll pay Income-Related Monthly Adjustment Amount (IRMAA) surcharges on top of the standard premium in 2026. IRMAA works as a cliff: one dollar over a bracket triggers the full surcharge for the year. At the highest bracket in 2026 ($500,000 single, $750,000 joint), the combined annual surcharge tops $6,900 per person.
Because IRMAA looks back two years, the year you retire or sell a major asset deserves careful planning. A one-time spike in 2024 income from selling a business or exercising options can land you with higher Medicare premiums in 2026 even if your current income is modest. If you’ve had a life-changing event like retirement or job loss, you can request an IRMAA reconsideration.
From AGI to Taxable Income
AGI is not the number you pay tax on. To get taxable income, subtract either the standard deduction or your total itemized deductions, whichever is larger.
Standard Deduction
Most filers take the standard deduction. For 2026:12Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- Single or married filing separately: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
Filers who are 65 or older or blind get additional standard deduction amounts on top of these figures. The $6,000 senior deduction from the One Big Beautiful Bill Act is separate: it’s an above-the-line deduction that reduces AGI rather than adding to the standard deduction, so qualifying seniors get both.
Itemized Deductions
If your deductible expenses beat the standard deduction, itemizing on Schedule A saves more. Common items include SALT (now up to $40,000 for most filers), home mortgage interest, and charitable contributions. After you subtract whichever method you use from AGI, the result is your taxable income, the figure the federal tax rate brackets actually apply to.
Where to Find Your AGI
Your AGI appears on Line 11 of Form 1040.1Internal Revenue Service. Adjusted Gross Income Tax software calculates it automatically as you enter income and adjustments.
You may need last year’s AGI when e-filing, because the IRS uses it to verify your identity before accepting an electronic return.2Internal Revenue Service. Definition of Adjusted Gross Income If you don’t have last year’s return, log into your IRS Online Account and check the Records and Status tab for the relevant tax year. You can also request a free tax return transcript if you can’t get into your online account.