Adjusted Gross Income (AGI)
Definition
A US taxpayer's total gross income less specific above-the-line adjustments. AGI is the starting point for many deductions, credits and phase-out thresholds.
Related Terms in US Tax
Taxable Income
The amount of income on which tax is actually calculated, after subtracting deductions from gross or adjusted gross income. Tax rates and brackets apply to this figure, not to total income.
Marginal Tax Rate
The rate of tax applied to the next unit of income — the bracket the last dollar earned falls into. It differs from the effective rate, which is total tax as a share of all income.
Effective Tax Rate
Total tax paid as a percentage of total income, giving the average rate across all brackets. It is usually lower than the marginal rate because earlier income is taxed at lower rates.
Tax Credit vs Deduction
A deduction reduces taxable income, so its value depends on the tax rate; a credit reduces the tax bill directly, dollar for dollar. Credits are generally worth more than deductions of the same amount.
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