Let's say you're considering adjusting your contribution to your retirement fund. Knowing your adjusted gross income could help you decide how much to increase or decrease your contribution if you are trying to stay in a particular tax bracket. Or, maybe you're negotiating a raise with your employer. Knowing your gross adjusted income, or AGI, before you ask for more money can help you determine how much to ask for.
That said, you can calculate adjusted gross income using a W-2 form if you have the right tax form that lists all possible income and expenses to offset your gross income. Your W-2 form tells you how much you earned from an employer. If you have any other income, that will not be included on a W-2.
Look for the Wages
A W-2 form has a lot of information in its boxes. You need to know your total gross wages for the year, and that is found in Box 1 – Wages, Tips and Other Compensation. The amount in this box represents what you earned from that employer during the previous year. If you have more than one W-2, total the amounts from that box on each W-2 to get your total income for the year.
Calculate Expenses and Adjustments
Now that you know how much you made for the entire year, tally your deductions and expenses. The easiest way to do this is by following the list found on a tax return form. If you don't have any expenses, then you're done because your adjusted gross income will be the total from your W-2s forms. If you plan to itemize or you have self-employment income, use Form 1040. For the 2018 tax year, the IRS has updated Form 1040 to be shorter and simpler.
Calculate Adjusted Gross Income Using a Form 1040
Examine the tax form and make sure you have included all of your income. If you received a retirement account distribution, dividends, taxable interest, income from real estate or your business showed either a profit or loss, that income has to be counted before you subtract your expenses and adjustments. Once you have accounted for all your wages and income, tally your expenses and adjustments.
Form 1040 allows you to declare the most expenses, so it's the best form to use if you have a lot of expenses you want to subtract from your income. Expenses include educator expenses, business expenses, the health savings account deduction, the deductible part of self-employment tax, retirement plan contributions, self-employment health insurance deductions, early withdrawal penalty for savings accounts, alimony, IRA deductions, student loan interest, tuition and fees and domestic production deduction activities.
Once you have a tally of all your expenses, subtract that amount from your gross income. For example, if your W-2s and other income equal $56,000 and you have $15,000 in allowable expenses, your Adjusted Gross Income would be $41,000 ($56,000 - $15,000).
Calculate Adjusted Gross Income Using a Form 1040A
Form 1040A doesn't have as many income allowances (if you have more than is listed on the form, you'll need to switch to the 1040 form). It also doesn't have as many expenses. That said, you'll calculate the AGI in the same manner.
Add up your income and wages, then add the total of your expenses, which include educator expenses as well as IRA deductions. Then subtract your expenses from your gross income. If math wasn't your best subject, you can also use a helpful online AGI calculator to help you with the calculations.
Form 1040A does not apply to tax years after 2017. Beginning with the 2018 tax year, the IRS modified Form 1040. 1040A and 1040-EZ forms only apply to tax years 2017 and before. Now, there's an updated Form 1040 and Form 1040-SR.
- IRS.gov: Form 1040A
- IRS.gov: Form 1040EZ
- IRS.gov: About Form 1040: U.S. Individual Income Tax Return
- IRS.gov: About Form W-2, Wage and Tax Statement
- Definition of Adjusted Gross Income | Internal Revenue Service
- TurboTax.com: How to Figure Out Adjusted Gross Income (AGI)
- TaxAct.com: Adjusted Gross Income (AGI) Calculator
- Internal Revenue Service. "Publication 501: Dependents, Standard Deduction, and Filing Information," Page 3. Accessed Jan. 3, 2020.
- Internal Revenue Service. "Definition of Adjusted Gross Income." Accessed Jan. 3, 2020.
- Internal Revenue Service. "What is Taxable and Nontaxable Income?" Accessed Jan. 13, 2020.
- Internal Revenue Service. "Publication 525: Taxable and Nontaxable Income," Pages 4, 8, 18, 34. Accessed Jan. 3, 2020.
- Internal Revenue Service. "Modified Adjusted Gross Income." Accessed Jan. 3, 2020.
- Internal Revenue Service. "Publication 590-A: Contributions to Individual Retirement Arrangements," Pages 5-8. Accessed Jan. 3, 2020.
K.A. Francis has been a freelance and small business owner for 20 years. She has been writing about personal finance and budgeting since 2008. She taught Accounting, Management, Marketing and Business Law at WV Business College and Belmont College and holds a BA and an MAED in Education and Training.