Adjusted Gross Income (AGI) is defined as the gross income earned by an individual minus several adjustments made to that income, such as trade and business deductions. Gross income is the income earned by an individual, including the wage, dividends, capital gains, business income, retirement distributions but can also include other types of income. In order to find the AGI, adjustments are made to the income including for instance student loan interests, alimony payments or retirement savings.
The AGI must be calculated by the IRS to determine one individual’s income tax liability for the taxable year. The term applies to individuals and affects the extent to which medical expenses, nonbusiness casualty and theft losses, charitable contributions, and other items may be deducted.
See: 26 U.S. Code § 62
[Last updated in November of 2021 by the Wex Definitions Team]