Top Things to Know About Adjusted Gross Income

The adjusted growth income (AGI), also known as your "net income", is a tax term that is defined as your total income minus deductions. Your AGI is an important part of the information used to calculate your total tax liabilities on both the state and federal level.

Function

Your AGI is used in the calculation of your taxes. It is factored in after calculating your gross income and before you calculate your itemized or standardized deductions.

Calculations

Your AGI is calculated by subtracting certain deductions from your gross income. These deductions can include things like IRA contributions, student loan interest or half of your self-employment taxes.

Effects of the AGI

Generally speaking the lower the AGI, the lower your tax burden will be. A lower AGI means you will be able to declare more deductions and if it is low enough then you won't have to pay taxes at all. However the higher your AGI is, the more you will be able to contribute to retirement accounts and the more you'll receive in social security benefits.