AGI is total income minus above-the-line adjustments
Start with all your income, then subtract only the adjustments the tax code lists on Schedule 1 — not your standard or itemized deduction, which comes later. What is left is your adjusted gross income, the anchor line on Form 1040.
"Above the line" means subtracted before AGI, so you get these whether or not you itemize. The big ones: traditional IRA and HSA contributions, student loan interest, and half of self-employment tax.
Worked example
| Line | Amount |
|---|---|
| Wages (W-2) | $50,000 |
| Capital gains | $5,000 |
| Interest income | $500 |
| Total income | $55,500 |
| Less: student loan interest | −$2,500 |
| Less: IRA contribution | −$3,000 |
| Less: HSA contribution | −$2,000 |
| AGI | $48,000 |
The standard deduction (for tax year 2025, $15,000 single / $30,000 married filing jointly) is subtracted from AGI afterward to reach taxable income — it is not part of AGI.
What counts as an adjustment, and what doesn't
- Student loan interest — deductible up to $2,500 a year, and it phases out at higher incomes.
- Traditional IRA and HSA — contributions reduce AGI directly (Roth contributions do not).
- Self-employment tax — you deduct half of it as an adjustment if you have 1099 income.
- Capital gains and qualified dividends — taxed at preferential rates, but still counted in total income, so they raise AGI.
- AGI never goes below zero — if adjustments exceed income, AGI is 0, not negative.
Common questions
What is the difference between AGI and gross income?
Gross income is everything you earned: wages, interest, dividends, capital gains. AGI is that total minus a set of specific adjustments the IRS allows, such as IRA and HSA contributions and student loan interest. AGI is always the same or lower.
Do 401(k) contributions lower my AGI?
Not as a separate step. Traditional 401(k) contributions are already taken out of the wages reported in box 1 of your W-2, so they reduce your income before AGI is figured. Traditional IRA contributions, by contrast, are subtracted as an adjustment.
Why does AGI matter so much?
It is the number that decides eligibility for many credits and deductions, and how much of them you get. Cross an AGI threshold and a credit can shrink or disappear, which is why people time deductions to manage it.
