Adjusted gross income, or AGI, refers to your total income subject to tax, minus a few specific deductions. AGI is important, as it is used to determine your ability for certain tax credits and deductions, as well as certain social programs. For certain applications, eligibility is based on your monthly adjusted gross income, so here's how to estimate yours.
First, determine your total annual incomeThe first number you need to know is your total annual income. If you earn an annual salary, this is easy -- but make sure to include any bonuses you expect to receive.
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If you're an hourly employee, the easiest way to determine your annual income, assuming that you work roughly the same amount of hours in each pay period, is to look at one of your paychecks. Take your gross (before tax) pay, and multiply this number by the amount of pay periods per year.
Then, add up your deductionsOnce you know your annual gross income, the next step is to subtract your deductions. However, not all tax deductions are used to compute AGI just a select few. If you have any of the following, add them up to determine how much to deduct from your gross income.
- Health Savings Account (HSA) contributions
- Educator expenses If you teach full-time in an elementary or secondary school, you can deduct up to $250 of unreimbursed expenses.
- Qualified moving expenses If you moved a certain distance for the purpose of starting a new job, those expenses could qualify for a deduction.
- Retirement account contributions Contributions to qualified retirement accounts such as traditional IRAs, SEP-IRAs, individual 401(k)s, and SIMPLE IRAs are deductible when determining AGI. Annual limits vary by account type.
- Alimony you paid
- One-half of the self-employment tax
- Tuition and fees If you qualify within the income limitations, you can deduct up to $4,000 in qualified tuition and fees.
- Student loan interest Interest you paid on a qualifying student loan can reduce your AGI by up to $2,500.
Note: This is not an exhaustive list. There are other AGI deductions, but these are some of the most common.
Once you determine which deductions you qualify for, add up the amounts to determine your total income "adjustment."
Subtract the deductions from total income and divide by 12Subtracting your deductions from your total annual income gives you your annual adjusted gross income. Dividing this number by 12 will result in your monthly AGI.
It's important to note that for most people, this calculated monthly AGI is just an estimate. Your actual monthly AGI can vary based on the number of hours you work, unexpected bonuses, and other factors, but the calculation detailed here is the most accurate way to estimate it.
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