Adjusted Gross Income (AGI)
Adjusted gross income (AGI) is your total gross income minus specific 'above-the-line' deductions such as student loan interest, IRA contributions, and self-employment taxes. AGI is the starting point for calculating taxable income and determines eligibility for many tax credits and deductions.
Gross salary $90,000, traditional IRA contribution $7,000, student loan interest $1,500 → AGI = $81,500.
AGI = Gross income − Above-the-line deductions. Above-the-line deductions are those you can claim even if you don't itemize: student loan interest (up to $2,500), traditional IRA contributions (up to $7,000), health savings account (HSA) contributions, alimony paid (pre-2019 agreements), and one-half of self-employment taxes.
AGI matters because dozens of tax rules use it as a threshold or a calculation basis. The standard deduction is subtracted from AGI to arrive at taxable income. Many tax credits (child tax credit, earned income credit, education credits) phase out at specific AGI levels.
MAGI (modified AGI) adds back certain deductions and is used for Roth IRA eligibility and ACA premium subsidy calculations. MAGI is often close to AGI but not identical.
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- Taxable Income
- Taxable income is the portion of your income that is actually subject to income tax. It equals adjusted gross income (AGI) minus either the standard deduction or itemised deductions. Federal income tax brackets are applied to this number — not your gross salary.
- Standard Deduction
- The standard deduction is a fixed amount the IRS lets US taxpayers subtract from gross income before calculating tax, without itemising individual deductions. For 2025: $15,000 (single) or $30,000 (married filing jointly).
- Gross Income
- Gross income is your total income before any taxes, deductions, or withholdings. It is the starting figure used by lenders for DTI calculations and by tax authorities to determine your tax bracket.
- Roth IRA
- A Roth IRA is a US individual retirement account funded with after-tax dollars. Investments grow tax-free, and qualified withdrawals in retirement are completely tax-free.