Adjusted Gross Income

Adjusted gross income, usually written AGI, is an individual’s gross income minus the deductions listed in section 62 of the Internal Revenue Code. The statute defines the term as gross income minus the following deductions and then enumerates them, so the list is closed: a deduction either appears there and reduces AGI, or it does not (26 U.S.C. 62(a)).

On a 2025 Form 1040 the figure is line 11a, which subtracts adjustments to income at line 10 from total income at line 9 (IRS, Form 1040 (2025)).

What Section 62 Actually Lists

Section 62(a) is a list of categories rather than a principle, and the categories are narrower than their labels suggest. Trade and business deductions come first, but the paragraph reaches only deductions allowed by the chapter other than by part VII of the subchapter, which are attributable to a trade or business carried on by the taxpayer, and only if that trade or business does not consist of the performance of services by the taxpayer as an employee (26 U.S.C. 62(a)(1)).

That carve-out does real work. Part VII of the subchapter is the additional itemized deductions for individuals, so an expense for the production of income does not reach AGI through the trade or business paragraph at all. It arrives instead through paragraph (4), and only when it is attributable to property held for the production of rents or royalties (26 U.S.C. 62(a)(4)).

An ordinary employee’s business expenses reach AGI only through a short set of named exceptions, among them expenses reimbursed under an employer arrangement, and the expenses of qualified performing artists and fee-basis state and local officials.

The return renders the same idea as a form. Schedule 1, Part II, headed Adjustments to Income, runs from line 11 to line 26 and carries, among others, educator expenses, the health savings account deduction, the deductible part of self-employment tax, self-employed retirement plans and health insurance, the IRA deduction and the student loan interest deduction, with a lettered block of other adjustments at line 24 (IRS, Schedule 1 (Form 1040) (2025)). Line 26 totals them and sends the total to Form 1040, line 10.

Above the Line, and Why a Preparer Cares

Preparers call a section 62 deduction above the line because it sits above the AGI line on the form, and the Code makes that distinction definitional rather than cosmetic. The Code defines an itemized deduction by exclusion, and the first thing it excludes is the deductions allowable in arriving at adjusted gross income (26 U.S.C. 63(d)). An adjustment is therefore not an itemized deduction by definition, so a client who takes the standard deduction still gets it.

The second consequence is the one that moves money. Because the adjustment lands before AGI, it lowers every threshold the return later measures against AGI. Medical and dental expenses, to take the clearest case, are deductible only to the extent they exceed 7.5 percent of adjusted gross income (26 U.S.C. 213(a)), so a deductible IRA contribution both cuts AGI and drops that floor, while an itemized deduction of the same size does neither.

The additional deductions the 2025 return collects on Schedule 1-A do not work this way. They arrive at Form 1040, line 13b, and come off at line 14, below the AGI line, so they cut taxable income without moving AGI (IRS, Form 1040 (2025)). Who qualifies for them is in what the One Big Beautiful Bill changed for accounting firms.

What AGI Is Not

It Is Not Taxable Income

Taxable income sits one step lower. For an individual who does not elect to itemize, taxable income means adjusted gross income minus the standard deduction and the other amounts subsection (b) lists (26 U.S.C. 63(b)). On the form, line 15 subtracts the deduction total at line 14 from the AGI carried to line 11b (IRS, Form 1040 (2025)). Where the qualified business income deduction sits in that order is in QBI deduction, and the total tax that falls out of taxable income is in tax liability.

It Is Not Gross Income

Gross income is the starting figure, not the result. AGI is what remains once the section 62 deductions come out, so the two match only for a taxpayer who has no adjustments at all.

Where AGI Shows Up in a Firm’s Work

The first place is authentication rather than arithmetic. The Self-Select PIN method requires taxpayers to provide their prior year adjusted gross income amount or prior year PIN so the IRS can authenticate them, while the Practitioner PIN method does not require the taxpayer to provide either (IRS, Publication 1345). The trigger is the signature method used on the return in hand, not who prepared last year’s return, and a signed authorization form does not remove it: under the Self-Select PIN method taxpayers may authorize the firm to enter their PINs, in which case they must review and sign a completed signature authorization form, and the prior year figure is still what authenticates them (IRS, Publication 1345).

The second is that AGI is the base other rules measure against, either directly through an AGI floor or through a modified adjusted gross income that each provision defines for itself, which is why the phrase carries no single meaning across the Code. The version that governs the state and local tax cap is worked through in SALT deduction.

Common Questions

Wages (Form 1040, line 1z)                     82,000
Taxable interest (line 2b)                        400
Total income (line 9)                          82,400

IRA deduction (Schedule 1, line 20)            (4,000)
Student loan interest (Schedule 1, line 21)    (1,200)
Adjustments to income (line 10)                (5,200)

Adjusted gross income (line 11a)               77,200

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