Everyone should know their AGI or Adjusted Gross Income as it offers a number of supreme benefits like lower tax, tax credits, and many other advantages. But the problem arises in finding it and most people have no idea where to find or calculate their AGI.
Of all the forms they fill out related to tax, the most famous one seems to be W-2. That’s why many have asked me whether they can get their AGI from W-2 forms.
Yes, you can get your AGI from your W-2 form if you know how much you can deduct from the gross income filled in the form. But make sure you subtract the right amount and also file the accurate numbers to the IRS, or else you will have to pay the penalty.
If you want to know the step-by-step procedure of calculating AGI and which income is deductible, then stay with me till the end.
The W-2 form does not explicitly show how much your AGI is. It only deals with the unadjusted Gross Income or the total money earned from any job you do. So, a direct AGI number is not found in this form.
You can still calculate your AGI using the W-2 form, and the process is not complex either. With the information filled in the boxes of a W-2 form, you can estimate your AGI successfully.
People generally don’t know how to calculate AGI and keep assessing box 1 to box 14. That’s the wrong approach. Do you need to have the information in every box? Nope!
You will only need the number filled in box 1.
Only Box 1 is enough for you if you want to know your Adjusted Gross Income. This box deals with the annual salary. Also, you should deduct only those monetary payments that are exempted from the tax.
Don’t worry; I am describing which incomes you can deduct from the Gross Income filled in the W-2 form. These are:
- Health saving account
- Contributions to retirement saving account
- Educator expenses
- Business expenses of reservists, expenses of artists
- Student loan
- Moving expenses (only for army men)
- IRA deduction
Here’s how you can do the calculations yourself.
- Check your income and the tax statements first. Your income includes salary, prizes, compensations, unemployment benefits, etc.
- Next, add every source of money, and you will have your gross income (GI). This will be present in the box of one of the W-2 forms if you have a copy of it.
- After that, you will have to find every “Above the line deduction” payment or any other income that needs to be adjusted from the last year. Be careful here as it is an extremely crucial step in finding your AGI using the W-2 form. If you get it wrong, the final Adjusted Gross Income will not be accurate, which can cause you a lot of trouble from the IRS.
- The income listed in the “Above the line deductions” is then subtracted. The resultant number you will get is your Adjusted Gross Income (AGI).
The greater the amount you have under “Above the line deductions,” the lesser the tax you will have.
Let me make this a bit clear with a hypothetical example.
Suppose the annual income you earn is 100,000$. That’s the final income you get when you add every other source.
The Above the Line Deductions that will be subtracted from the gross or final income are:
- Student loan of 250$
- Educator expenses worth 250$
- The contributions you add to your retirement account are 3000$
- The contributions you add to your health savings account are 2000$.
So, the total deductions from the final income will be 250$+250$+3000$+2000$=5,500$.
It means 100,000$-5,500$= 94,500$ will be your Adjusted Gross Income (AGI).
You might land in hot waters if you file the wrong AGI for tax returns. The IRS will issue you a notice and you will have to be answerable and clear the situation.
W-2 forms are filled by the employers when the tax year ends, and the other one is about to begin. The employer will put all of your earnings and taxes on them in the form.
Since employers don’t know how much their employees are saving in the health savings account or retirement account, they can’t possibly know about your AGI. You will have to find the deductibles accurately and calculate yourself before informing the IRS about it.
Tip: The IRS knows everything!
When employers fill out the W-2 form, they submit a copy of each form to the IRS as well. When you apply for the tax returns, the IRS cross-matches everything. Any mismatch or misinformation is quickly detected, and you will then receive an accuracy-related penalty notice, which you will have to answer.
So, to avoid any trouble, it must be filled accurately. If you add the wrong information and receive a notice from the IRS, don’t get too worried. Reach out to a financial advisor or a service for tax consultations and to resolve the issue as soon as possible.
As of yet, a Single filer who is earning less than 125,00$ per year can claim deductions of up to 6,000$, while those who are earning up to 140,000$ can also claim partial deductions.
If you are filing under “Marriage and Jointly filed,” each of you can get the deductions of 6,000$ if the total amount is less than 198,000$ and a partial reduction if the amount is less than 206,000$.
It would be best if you consulted your financial advisor before you take any step in calculating AGI.
If you haven’t received a copy of your W-2 form from your employer and now want to know whether you can still find your Adjusted Gross Income or not.
You can still calculate your Adjusted Gross Income with your last paystub. It’s not that difficult. The process is almost similar to the one we used in finding the AGI with a W-2 form.
Here’s what to do:
- Add the income on your paystub to your calculator and then add other income from other sources like a lottery, prizes, etc., to get a final income.
- In the next step, deduct all the income, which falls under “Above the Line Deductions.” Generally, people have student loans, educator expenses, health care contributions, and contributions to the retirement account that is deducted from the final gross income.
- The resultant figure you will have will be your Adjusted Gross Income (AGI).
If you have your tax returns, then you can still calculate your AGI. In the upper right corner, you will see the tax form. In any form, you can know your AGI from line 11 (in 2020 form) or 8b (in 2019 form).
Note: Self-Employed can’t calculate AGI on a W-2 form. They will need Form 1099 to know their Adjusted Gross Income.
Another form that shows Adjusted Gross Income is the Official IRS transcript. So, find out your AGI, claim the relief it provides, and plan for a better future.
Now, an overview of why everyone should know about their AGI.
AGI is the sum of claimable expenses, tips, compensations, and contributions. Everyone should know about it because of its economic significance.
You can save a lot of your money earned via both active and passive sources if you know about AGI. You will get your tax refund which you may save in your account or invest somewhere and improve your living standard.
You should also know AGI because it is used by the IRS to confirm your identity when you e-file your tax return.
Moreover, if you adjust your gross income, getting a loan on the property becomes easy.
In addition to this, knowing your AGI will allow you to better plan your taxes in the future. That is why every financial advisor keeps on stressing the importance of the Adjusted Gross Income and what benefits they bring to the table to make life a little easier.
Knowing about AGI is super important because it can benefit you in different ways. It can reduce your taxes, give you tax credits, and act as a verification source when you e-file your tax return. People generally don’t know where to find it and often ask, “Can I get my AGI from My W-2 form?”
Well, the W-2 form does not explicitly show your Adjusted Gross Income. It only deals with the annual income you earn.
But you can still calculate your AGI by making deductions of incomes (like alimony, contributions to a health savings account, student loan, educator expenses, contributions to a retirement account, and many other above-the-line deduction payments).
When you subtract these numbers from the total income, you will get your AGI. It’s that simple!