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What is adjusted gross income on W2 in simple terms?
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Table of Contents
What Is Adjusted Gross Income
The adjusted gross income is essentially your total gross income minus any specific deductions.
The adjusted gross income is an important figure to calculate as it serves as the basis for determining your eligibility for various tax credits or deductions.
The reason why it’s called the “adjusted” gross income is that you start with your gross income and then you reduce this amount by certain deductions.
Therefore, your gross income less the deductions gives you your adjusted gross income (or AGI).
The IRS defines the adjusted gross income as:
Gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account
In essence, your Adjusted Gross Income is your “Gross Income” minus the “Adjustments to Income”.
Why Is Adjusted Gross Income Important
Knowing your Adjusted Gross Income is quite important for many reasons.
The first reason why you should know this number is that the IRS may use your Adjusted Gross Income (or AGI) to verify your identity when you’re dealing with them.
Also, the main reason why AGI is important is that it impacts many tax deductions and tax credits that you may be entitled to.
The more you’re eligible for tax credits or allowed to make deductions, the more you’ll save in taxes.
Reducing your total tax bill can be quite satisfying allowing you to keep more of your hard-earned money!
Where Is Adjusted Gross Income On W2
You cannot find the adjusted gross income directly on your W2 form.
However, you can calculate your adjusted gross income using your W2.
To calculate your adjusted gross income, you should add up all your income to get your gross income which includes your wages, tips, dividends, capital gains, self-employment income, rental revenue, etc.
From that, you subtract the Adjustments to Income which are contributions to qualified accounts, student loan interest, alimony payments, and other expenses.
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Where To Find Your Adjusted Gross Income
Where you can actually find your adjusted gross income is on the full tax return that you submit to the IRS.
You can locate your prior year adjusted gross income by looking at your Form 1040 at Line 11.
In addition to that, there are other places you may find your adjusted gross income, such as:
- Line 11 on Form 1040 and 1040-SR (tax year 2020)
- Line 8b on Form 1040 and 1040-SR (tax year 2019)
- Line 7 on Form 1040 (tax year 2018)
- Line 21 on Form 1040A (before 2018)
- Line 4 on Form 1040EZ (before 2018)
- Line 11 on Form 1040NR (tax year 2020)
How To Calculate Adjusted Gross Income From W2
Your employer will calculate the adjusted gross income on your W2 by projecting your entire taxable wages for the year and subtracting your pretax contributions.
The possible deductions that your employer can make are to qualified plans such as 403(b), 401(k), parking expenses, dependent care, medical premiums, flexible spending accounts, FICA taxes, and others.
To calculate your Adjusted Gross Income, we’ll need to cover two main elements:
- Your Gross Income
- Your Deductions
Let’s start with your gross income.
Gross Income
Your Gross Income is how much money you earned in a year that is subject to tax.
This can include salaries, wages, tips, commissions, bonuses, business income, dividends, interest income, capital gains, rental revenue, or any other source of income.
To get your Gross Income, you’ll need to add up all your income from different sources in a given tax year.
Now, let’s tackle the deductions.
Deductions
To calculate your adjusted gross income, you’ll need to subtract the deductions.
Deductions can include things like 401(k) contributions, medical bill payments, interest on student loans, charitable donations, alimony payments, educator expenses, specific job-related expenses, moving expenses, contributions to health savings accounts, or other contributions to retirement accounts.
To calculate your total deductions, you’ll need to add up all the contributions and deductions that are applicable to you.
Adjusted Gross Income
Now that you have calculated your Gross Income and determined your total Deductions, we can now calculate the adjusted gross income.
Your adjusted gross income is your gross income on your W2 minus your deductions for the year.
In other words, you take your total taxable income, minus your deductions, and you have your adjusted gross income.
Remember that you don’t have the Adjusted Gross Income directly on your W2 form, but you can calculate it using the information available.
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How To Calculate Adjusted Gross Income Without W2 Form
If you cannot find your W2 form but still need to calculate your Adjusted Gross Income, you can still do that using your paystub.
All the information that you will find on your paystub can help you calculate your Adjusted Gross Income.
To calculate your AGI, find your annual income on your paystub.
To that income, add all the other types of income that you earn from other sources like dividends, investment, rental revenue etc.
By adding all your income together, you get your Gross Income.
Now, add up all the deductions that you’re allowed to deduct, such as:
- Alimony
- Student loan interest
- Educator expenses
- Contributions to a Health Savings Account
- Contributions to retirement accounts
- Specific job-related expenses
- Moving expenses
- Half of the self-employment taxes that you paid
Finally, take your Gross Income and subtract your total deductions to get your Adjusted Gross Income.
Takeaways
So there you have it folks!
Many ask the question: What is Gross Adjusted Income on Your W-2?
In fact, the answer to this question is that you don’t have the Adjusted Gross Income figure printed on your W2 form.
However, you can calculate your AGI using your W2.
To calculate your AGI, you need to determine your Gross Income and then subtract the Adjustment to Income.
Gross income is all the taxable income you’ve earned from all sources.
Adjustment to Income includes things like Educator expenses, Student loan interest, Alimony payments, or contributions to a retirement account.
Now that you know what is your adjusted gross income and how you can get it from your W2 form, good luck with your research!
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