Think of AGI as your "official" income number. Lowering it has cascading benefits: lower tax bracket, more credits unlocked, more deductions available, and fewer phaseouts. That's why pre-tax 401(k), HSA, and Traditional IRA contributions are so powerful — they all reduce AGI directly.
The AGI Formula
Gross Income(salary, 1099, interest, dividends, etc.)
−Above-the-Line Deductions(401k, HSA, IRA, student loan int., 1/2 SE tax)
=AGI
📌 Why AGI matters
- • Tax brackets apply to taxable income, which is AGI minus your standard or itemized deduction.
- • Roth IRA eligibility phases out above $150k single / $236k married AGI.
- • Child Tax Credit phases out above $200k / $400k AGI.
- • Medical expense deduction only counts the portion above 7.5% of AGI.
- • Student loan interest deduction phases out at higher AGI.
Example AGI Breakdown
$85,000
Single filer · $85k W-2 example
Gross Salary$85,000
From your W-2 (Box 1)
= Your AGI$85,000
Reported on Form 1040, Line 11
From AGI to Taxable Income
− Standard Deduction−$15,000
= Taxable Income$70,000
Marginal Bracket
22%on the next dollar earned
Important AGI thresholds in 2026
Roth IRA Phaseout
$150k–$165k single
$236k–$246k married
Direct contributions phase out; backdoor Roth still works
Child Tax Credit
$200k single / HoH
$400k married
$50 credit reduction per $1k over threshold
Additional Medicare Tax
$200k single
$250k married
Extra 0.9% on wages above threshold
Net Investment Income Tax
$200k single
$250k married
3.8% on investment income above threshold
Student Loan Interest
$80k–$95k single
$165k–$195k married
Up to $2,500 deduction, phases out
Saver's Credit
Below ~$39k single
Below ~$77k married
Up to $1k/$2k credit for retirement savings
Medical Deduction Floor
7.5% of your AGI
~$6,375 on $85k AGI
Only expenses ABOVE this are deductible
QBI Phaseout (Service)
$241k single
$483k married
20% deduction phases out for consultants, doctors, etc.