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In the United States income tax system, adjusted gross income (AGI) is an individual's total
gross income For households and individuals, gross income is the sum of all wages A wage is the distribution from an employer Employment is the relationship between two party (law), parties, usually based on a employment contract, contract where wo ...
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. Th ...
, which is AGI minus allowances for personal exemptions and
itemized deduction Under United States tax law The United States of America The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North Ameri ...
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 Most individual U.S. state In the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North Americ ...
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 Income taxes in the United States are imposed by the Federal government of the United States, federal, most State governments in the United States, states, and many Local governments in th ...
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 advantage, 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 t ...
deductions, *Certain moving expenses *One-half of
self-employment tax Self-employment is the state of working for oneself rather than an employer. Generally, tax authorities will view a person as self-employed if the person chooses to be recognised as such, or is generating income such that the person is required to ...
, *Allowable contributions to certain retirement arrangements (
SEP IRA A Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) is a variation of the Individual Retirement Account An individual retirement account (IRA) in the United States is a form of "individual retirement plan", provided by many fin ...
,
SIMPLE IRA A Savings Incentive Match Plan for Employees Individual Retirement Account, commonly known by the abbreviation "SIMPLE IRA", is a type of tax-deferred employer-provided retirement plan in the United States that allows employees to set aside money an ...
, and qualified plans) and
Individual Retirement Account An individual retirement account (IRA) in the United States is a form of "individual retirement plan", provided by many financial institutions, that provides tax advantage Tax advantage refers to the economic bonus which applies to certain account ...
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 Domestic may refer to: In the home * Anything relating to the human home or family ** A domestic animal, one that has undergone domestication ** A domestic appliance, or home appliance ** A domestic partnership ** Domestic science, sometimes cal ...
, 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 An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an ind ...
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 interest, the excluded portion of Social Security benefits and tax-free foreign earned income.


References

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Further reading

IRS Materials
Publication 17
Your Federal Income Tax

series of forms and instructions
Social Security's booklet
"Medicare Premiums: Rules for Higher-Income Beneficiaries" and the calculation of the Social Security MAGI. Personal taxes in the United States Tax terms