What's the Difference Between Gross Income and Adjusted Gross Income?

Gross income and adjusted gross income (AGI) are two different ways of measuring your income that appear at different points on your tax return. Gross income is the starting figure and includes all taxable income you received during the year, such as wages, freelance earnings, investment income, and rental income. Adjusted gross income is your gross income minus a set of specific deductions the IRS calls above-the-line deductions, including contributions to a traditional IRA, student loan interest, and self-employed health insurance premiums. Your AGI matters because it's used to calculate your eligibility for many other deductions and credits, and some are phased out as your AGI rises. A lower AGI can unlock access to credits and deductions that aren't available at higher income levels, which is why reducing your AGI through retirement contributions is one of the most effective ways to lower your overall tax bill.