In the United States income tax system, adjusted gross income (AGI) is an individual's total gross income minus specific deductions. It is used to calculate

taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. ...

, which is AGI minus allowances for personal exemptions and

itemized deduction Under United States tax law, itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and is claimable in place of a standard deduction, if available. Mos ...

s. For most individual tax purposes, AGI is more relevant than gross income. Gross income is sales price of goods or property, minus cost of the property sold, plus other income. It includes wages, interest, dividends, business income, rental income, and all other types of income. Adjusted gross income is gross income less deductions from a business or rental activity and 21 other specific items. Several deductions (''e.g.'' medical expenses and miscellaneous itemized deductions) are limited based on a percentage of AGI. Certain phase outs, including those of lower tax rates and itemized deductions, are based on levels of AGI. Many states base

state income tax In addition to Federal government of the United States, federal Income tax in the United States, income tax collected by the United States, most individual U.S. states collect a state income tax. Some local governments also impose an income tax, ...

on AGI with certain deductions. Adjusted gross income is calculated by subtracting Above-the-line deduction from gross income.

Gross income

Gross income includes "all income from whatever source," and is not limited to cash received. It specifically includes wages, salary, bonuses, interest, dividends, rents, royalties, income from operating a business, alimony, pensions and annuities, share of income from partnerships and

S corporation An S corporation, for United States federal income tax, is a closely held corporation (or, in some cases, a limited liability company (LLC) or a partnership) that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Interna ...

s, and income tax refunds. Gross income includes net gains for disposal of assets, including capital gains and capital losses. Losses on personal assets are not deducted in computing gross income or adjusted gross income. Gifts and inheritances are excluded.

Adjustments

Gross income is reduced by certain items to arrive at adjusted gross income. These include: *Expenses of carrying on a trade or business including most rental activities (other than as an employee) *Certain business expenses of teachers, reservists, performing artists, and fee-basis government officials, *

Health savings account A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal in ...

deductions, *Certain moving expenses *One-half of self-employment tax, *Allowable contributions to certain retirement arrangements ( SEP IRA, SIMPLE IRA, and qualified plans) and

Individual Retirement Account An individual retirement account (IRA) in the United States is a form of pension provided by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's e ...

s (IRAs), *Penalties imposed by financial institutions and others on early withdrawal of savings, *Alimony paid (which the recipient must include in gross income), *College tuition, fees, and student loan interest (with limitations and exceptions), *Jury duty pay remitted to the juror's employer, * Domestic production activities deduction, and *Certain other items of limited applicability.

Reporting on Form 1040

Gross income is reported on U.S. federal individual income tax returns (

Form 1040 Form 1040 (officially, the "U.S. Individual Income Tax Return") is an IRS tax form used for personal federal income tax returns filed by United States residents. The form calculates the total taxable income of the taxpayer and determines how much ...

series) type of income. Supporting schedules and forms are required in some cases, ''e.g.'', Schedule B for interest and dividends. Income of business and rental activities, including those through partnerships or S corporations, is reported net of the expenses of the business. These are reported on Schedule C for business income, Schedule E for rental income, and Schedule F for farm income.

Modified AGI

Certain tax calculations are based on modified versions of AGI. The definition of "modified AGI" varies according to the purpose for which the related calculation is being used. These modified versions of AGI may add certain items to AGI that were excluded in computing both gross income and adjusted gross income. Common additions include

tax exempt Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, redu ...

interest, the excluded portion of Social Security benefits and tax-free foreign earned income.

References

{{Reflist

Gross income

Adjustments

Reporting on Form 1040

Modified AGI

References

Further reading