What Is Included in Adjusted Gross Income?
The term “adjusted gross income” appears on many financial forms, most notably yearly tax papers. As such, it is important for any savvy taxpayer to know exactly what it includes and what it does not. Your adjusted gross income is more than just a line on the page – it determines many things about your taxation and eligibility for various programs. Always keep a hard copy document that proves your adjusted gross income for the previous tax year.
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Included Income
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Your adjusted gross income, or AGI, includes your gross income minus any deductions. Wages, salaries, tips and self-employment income form the core of your AGI. Likewise, your AGI encompasses any additional taxable interest income or income subject to income tax. Ordinary dividends – returns on investments in a corporation – are also included as part of this total, as are capital gains. The taxable amount of your individual retirement account (IRA) distributions, pensions, Social Security benefits and annuities contribute to your AGI as well. Other income sources that are part of the total include alimony, unemployment, rental real estate, royalties, partnerships, trusts, farm income and taxable refunds, credits and offsets.
Exclusions and Deductions
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Gifts or inheritances and tax-free Social Security benefits do not contribute to your adjusted gross income. Nor does tax-free interest earned from state or local bonds. Once you've calculated your gross income, you can make deductions to determine your adjusted gross income. Common deductions include student loan interest, contributions to tax-deferred retirement plans, self-employment tax, self-employed health insurance contributions and moving expenses.
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Significance
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Your adjusted gross income determines your tax bracket. In addition, it determines which tax credits you are eligible for and how much you can contribute to tax-deferred retirement funds each year. Throughout the year, your AGI can affect applications for loans and numerous financial aid programs, including federal student aid, food stamp benefits and government health benefits.
Considerations
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You can have either a jointly filed or single adjusted gross income, depending on your household situation. At the time of publication, the Internal Revenue Service phases out charitable contributions and medical expenses once your joint adjusted gross income reaches $132,950 or your single AGI reaches $66,475. Your adjusted gross income appears on line four of IRS Form 1040EZ, line 21 of Form 1040A or line 37 of Form 1040.
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