How to calculate adjusted gross income (AGI) from a pay stub
The concept of adjusted gross income is intimidating to many people, especially given the length and complexity of tax filing. Still, if you’re like the millions of Americans whose only source of income is from their work, you can usually calculate your adjusted gross income from your pay stub. Below, we’ll walk you through the process, alerting you to situations where you might need to look elsewhere to get a full picture of your tax situation.
AGI and you
The best pay stub to use in calculating your AGI is the last of the year, as it will usually have running totals that represent your entire income for the year. Most pay stubs have a line showing gross income, which includes not only your take home pay, but also any deductions that were taken from your paycheck. This figure is the starting point for calculating the AGI.
Elsewhere on your pay stub, you will see deductions for various items. You can only subtract some of these items from your gross income to calculate the AGI. For example, money withheld from your paycheck for Social Security and Medicare taxes, sometimes called FICA on your pay stub, is not deductible from gross income. However, if you have money withheld for deductible items like contributions to a pension plan, health insurance premiums, or contributions to a flexible expense account, these amounts to do be subtracted in the calculation of adjusted gross income.
The best way to verify that your calculation is correct is to compare it with the numbers on your year-end W-2 form, which your employer sends you in January. The W-2 displays gross income as well as a breakdown of allowed income adjustments, helping you to calculate your AGI more directly.
What else to include
It is important to remember that the AGI includes not only employment income, but income from other sources as well. If you have income from investments or a business that you run at the same time, you will need to include it in your gross income and factor it into your AGI calculations.
Likewise, some income adjustments will not appear on a pay stub, but may still lower your AGI. IRA contributions, interest on student loans, and early withdrawal penalties on bank CDs are just a few examples of things unrelated to your job that can lower your AGI.
Using your pay stub is a good starting point for determining your AGI. Depending on whether you have other outside considerations beyond your job, the numbers you get from your pay stub can be extremely close or even dead to what your actual AGI turns out to be.
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