Net Income vs. Adjusted Gross Income (AGI): What's the Difference? (2024)

Net Income vs. Adjusted Gross Income (AGI): An Overview

All income starts with gross income, which is the total of all the money you make in a year. This includes salaries, wages, bonuses, capital gains, and interest income. As we know from our paychecks, this is not the money that we take home and put into our bank accounts. Our gross income is subject to taxes and often other deductions, which reduce gross income to arrive at net income: our take-home pay.

Adjusted gross income (AGI) also starts out as gross income, but before any taxes are paid, gross income is reduced by certain adjustments allowed by the Internal Revenue Service (IRS). One such adjustment is contributions to traditional 401(k) retirement accounts. This reduces gross income and, therefore, the amount of taxes that are paid.

Key Takeaways

  • Gross income is the entire amount of money an individual makes, including wages, salaries, bonuses, and capital gains.
  • Adjusted gross income (AGI) is an individual's taxable income after accounting for deductions and adjustments.
  • For companies, net income is the profit after accounting for all expenses and taxes; also called net profit or after-tax income.
  • Net income is used for both businesses and individuals, while AGI is only applicable to individuals.
  • Adjusted gross income is reported and calculated on Internal Revenue Service (IRS) documents Schedule 1 and Schedule A of Form 1040.

Net Income

Net income is your take-home pay from your job. This is the amount of money that goes into your pocket after everything is deducted from your gross pay. Your gross pay is the amount of money you receive per pay cycle before any deductions.

Common deductions from your gross income that result in your net income include:

  • Taxes, such as your federal, state, local, Social Security, and Medicare taxes
  • Pretax deductions, such as health and dental insurance, contributions to company-sponsored retirement plans such as 401(k)s, and flexible spending accounts (FSAs)

You can also elect to have these pretax benefits deducted from your gross pay. Since they are deducted before taxes, it reduces your take-home pay, which also reduces the amount of taxes that are withdrawn from your paycheck.

Net Income for Businesses

Net income is a figure that businesses report on their financial statements—notably their income statements. Just like an individual's net income, a company's net income is determined by making certain deductions from its gross pay, which is its gross sales or revenue. In other words, gross income is the total value of goods and services sold by a company to its customers. These deductions include the:

  • Cost of goods sold (COGS)
  • Operating expenses
  • Interest expenses
  • Taxes

Adjusted Gross Income (AGI)

AGI is gross income that is adjusted through qualified deductions that are permitted by the IRS. These deductions reduce an individual's gross income, thus reducing the taxes they need to pay.

For example, an individual with a gross income of $110,000 in 2024 would be in the 24% tax bracket. If that figure was reduced in ways permitted by the IRS, it might result in an AGI of $98,000. The individual would now be in the 22% tax bracket and would pay 22% tax on $98,000 instead of 24% on $120,000.

Your AGI is probably the most important figure on Form 1040 since it is the benchmark used by the IRS to determine how your taxes are processed, how much tax you owe, and your eligible benefits. Items eligible to be deducted from gross income are described as follows:

  • Self-employed individuals can deduct several expenses, including health insurance premiums and half of the self-employment tax.
  • Those who make contributions to individual retirement accounts (IRAs) and qualified retirement plans can reduce their gross income by the amount contributed, up to yearly limits.
  • Reservists, qualified performing artists, and government workers paid on a fee basis may claim certain business expenses via Form 2106.
  • Those investing in a Health Savings Account (HSA) can deduct that cost.
  • The interest on student loans, but not the principal balance, is tax-deductible.
  • Educator expenses are deductible up to $300 a year.

Eligible educators can deduct up to $300 of unreimbursed expenses.

All of these expenses are standard above-the-line deductions that can take a while to sort through, but it is well worth taking advantage of every tax break you can find.

Below-the-line deductions, such as charitable donations or medical expenses, can be subtracted from your AGI after it has already been calculated. These deductions are listed on Schedule A and reported on Form 1040.

Medical expenses must exceed 7.5% of AGI to qualify for the deduction. In addition, deductions for cash contributions to charities are generally limited to 60% of AGI. But in some cases, 20%, 30%, or 50%, may apply. These deductions likely determine whether you use the standard deduction or itemize your deductions.

Calculating Adjusted Gross Income (AGI)

To figure out AGI, start with your gross income, or all the money you've accrued during the course of the calendar year, and subtract all qualified adjustments. The IRS allows for specific deductions to be taken from your total gross income.

These deductions are estimated and listed when you file your taxes. Most deductions, or the above-the-line deductions, are listed on Schedule 1 and reported on Form 1040. Itemized deductions, which may not apply to every person, are listed on Schedule A and also reported on Form 1040.

From Jan. 1, 2019, alimony is no longer an allowed deduction to be used in the calculation for adjustable gross income.

Key Differences

Net income, as mentioned above, is a term used both for individuals and businesses. AGI is a term used only for individuals, not for businesses. It is used only on individual tax returns.

If you have a business as a sole proprietor, the profit and loss are filled out on Schedule C and attached to Form 1040.

What Is the Difference Between Gross Income and Adjusted Gross Income?

Gross income is the starting point of all the money you make, including salary, wages, bonuses, and capital gains. This is different from adjusted gross income. AGI is calculated by subtracting any qualified deductions from your gross income. These deductions include things like student loan interest and educator expenses. Adjusting your gross income reduces the amount of tax you pay.

Is Net or Gross Higher?

Gross income is always higher than net income. Gross income is the total amount of money you earn before any deductions. Net income is your take-home pay. As such, it is what is left over after any taxes and other elective deductions, such as retirement plan contributions, health and dental premiums, and other benefits, are subtracted from your paycheck.

What Is the Meaning of Annual Net Income?

Annual net income is the money you take home in a year after all deductions have been made, including taxes, contributions to retirement plans, and healthcare costs.

How Is Adjusted Gross Income Calculated?

To calculate adjusted gross income, you must start with your gross income (all the money you earn within a year) and subtract all qualified deductions. These deductions can be found on Schedule 1 of Form 1040.

The Bottom Line

Income is the amount of money you receive from various sources, including employers, for services rendered. There are different categories of income, such as net and adjusted gross income. Net income generally refers to your take-home pay or the amount of money left over after all taxes and deductions are taken from your paycheck. Don't confuse this with your adjusted gross income, which is the income calculated on your annual tax return after accounting for qualified deductions. This figure is the starting point to calculating your tax liability and to determine if you are eligible for certain tax credits and other deductions.

Net Income vs. Adjusted Gross Income (AGI): What's the Difference? (2024)


Net Income vs. Adjusted Gross Income (AGI): What's the Difference? ›

Adjusted gross income (AGI) is an individual's taxable income after accounting for deductions and adjustments. Net income for companies is the profit after accounting for all expenses and taxes. It's also referred to as net profit or after-tax income.

What is the difference between AGI and net income? ›

Your adjusted gross income is the amount of money you receive each month that is subject to taxes. AGI is only used on individual tax returns. Although AGI is typically referred to as net income, they are not exactly the same. Whereas net income refers to after tax income, AGI is total taxable income.

Is my AGI the same as my gross income? ›

Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take. Gross income includes wages, dividends, capital gains, business and retirement income as well as all other forms income.

How do I find out my AGI? ›

How to Locate Your Previous Year AGI If You Don't Have Access to Your Return
  1. View or download a transcript of your return online at
  2. Go to and request a hard copy transcript of your return be mailed to you. ...
  3. Call the IRS at 800-908-9946 and request a hard copy transcript be mailed to you.

How do I calculate my AGI? ›

You can determine your AGI by calculating your annual income from wages and other income sources (gross income), then subtracting certain types of payments, such as student loan interest, alimony, retirement contributions, or health savings account contributions, you've made during the year.

How much lower is AGI than gross income? ›

Simply put, your AGI is your gross income minus any adjustments to your income. It's a vital first step for knowing how much of your gross income is taxable.

Why is AGI higher than taxable income? ›

Taxable income is a layman's term that refers to your adjusted gross income (AGI) minus any itemized deductions you're entitled to claim or the standard deduction according to your tax filing status (e.g., single, married filing jointly, or head of household).

Is my AGI the same as my W2? ›

Your adjusted gross income acts as a guidepost for several aspects of your finances. Your AGI determines whether you're eligible for various tax credits during tax time. While you can't find AGI on the W2 your employer sent you, you'll use your Form W-2 to help calculate AGI.

Can I find my AGI on my W2? ›

You can't find AGI on W-2 Forms. You'll calculate your adjusted gross income (AGI) on Form 1040. Your AGI includes amounts from your W-2. However, it isn't based solely on those amounts.

Is AGI the same as income on W2? ›

Your W-2 or pay stub shows your unadjusted gross income from only that one job. Your W-2 or pay stub doesn't include other income that goes into your AGI calculation, such as income from self-employment or side jobs, interest or dividends, capital gains, taxable state and local refunds, unemployment, or alimony.

Why is my tax return rejected because of AGI? ›

When you enter your prior year AGI or PIN, it must match the IRS master file exactly. If your return was rejected for an AGI or PIN mismatch, it means that what you entered doesn't match their records. The IRS only requires one of these to match their records to get accepted. Most people use their prior year AGI.

Is AGI before or after taxes? ›

AGI is simply the acronym for Adjusted Gross Income. It's a common term in the tax and finance world, so it's important to understand AGI's meaning and relevance. To boil it down, it's simply your total gross income minus specific tax deductions.

What is the meaning of gross income? ›

An individual's gross income is the total amount earned before taxes or other deductions. Usually, an employee's paycheck will state the gross pay as well as the take-home pay. If applicable, you'll also need to add other sources of income that you have generated—gross, not net.

Is social security included in AGI? ›

Social Security benefits are included in your adjusted gross income (AGI) if your total income, which consists in half of your Social Security benefits and other sources of income, exceeds a certain threshold.

Where is the AGI on 1040? ›

Adjusted gross income appears on IRS Form 1040, line 11.

Where is AGI on the IRS transcript? ›

Here is a sample IRS transcript. On this sample, adjusted gross income is the seventh (and eighth) line on page 3 of 6 pages. It is also the last line under Adjustments to Income.

Where can I find my 5 digit self select pin for taxes? ›

What if I can't remember last years AGI or PIN? You may call the IRS toll free number at 1-800-829-1040 or use the link on our self select pin page to enter data to receive that information.

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