Home Taxes Earned income vs. Adjusted gross income
Gross income. Adjusted gross income. Earned income. Net income. Taxable income.
When you’re trying to do your taxes, they all sound the same. And like all things in the world of taxes, it’s the small differences between them that power your return.
Think of income categories as bags of money.
Gross income has the potential to be the biggest bag because it includes all the ways you get paid throughout the year.
So that’s your paycheck, sure. Tips, yup. Commissions, bonuses, and — if you’re self-employed — business income minus expenses.
What sets gross income apart is that it also includes more passive income, like earnings from investments and retirement. That big bag of money is full of traditional earnings along with take home money from Interest and dividends, Social Security, and Social Security Disability.
Two more categories to familiarize yourself with that directly relate to gross income: adjusted gross income and earned income.
Let’s start with earned income.
Keeping with the idea of big bags of money, earned income has much of the same stuff as gross income, but without the passive revenue streams. It is the money you’re paid for working, along with certain pre-retirement disability benefits. Think of earned income as gross income, minus the investments and retirement.
If you work for someone else, work for yourself or run a farm, the taxable money you pull in automatically qualifies as earned income. See the full IRS list here.
AGI, or adjusted gross income, is a different animal.
This is your gross income with above the line deductions applied. Above the line deductions are available to everyone, regardless of whether you’re itemizing or taking a standard deduction.
These deductions (known as “adjustments to income”) make your gross income amount smaller. When your gross income is smaller, you pay fewer taxes on it — and fewer taxes are a very good thing.
Here are a few common AGI deductions that many people claim:
- Certain retirement plan contributions
- Half of the self-employment tax
- Healthcare savings account (HSA) deductions
- Some alimony payments
- School tuitions, fees, and student loan interest
- Jury duty pay turned over to a filer’s employer
Think of adjusted gross income as gross income, minus above the line deductions. See the full IRS list here.
Before you decide to itemize or take a standard deduction, apply above the line deductions to your gross income. The number you’re left with is your AGI.
You don’t have to master tax terminology to maximize your refund: You have TaxAct. And we’ll help you find each deduction, crunch the numbers, and keep more money in your pocket. It’s already yours: you’ve earned it.
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FAQs
AGI. You calculate your final, adjusted gross income using gross income. Although gross income includes earned income, you make any adjustments after calculating the total amount of your earnings. Some adjustments may apply to your earned income, like retirement fund deductions from your paycheck.
What does IRS consider earned income? ›
For the year you are filing, earned income includes all income from employment, but only if it is includable in gross income. Examples of earned income are: wages; salaries; tips; and other taxable employee compensation. Earned income also includes net earnings from self-employment.
Is EIC based on AGI or total income? ›
To claim the Earned Income Tax Credit (EITC), you must have what qualifies as earned income and meet certain adjusted gross income (AGI) and credit limits for the current, previous and upcoming tax years.
Is Social Security considered earned income for Social Security? ›
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives.
What disqualifies you from earned income credit? ›
Investment Income - If you have investment income of more than $11,000 in 2023 or 2024, you will not be eligible for the EIC. Investment income includes things like interest, dividends, and capital gains. 3. Foreign Income - If you have foreign earned income, you may not be eligible for the EIC.
Is AGI just my salary? ›
Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take. Gross income includes wages, dividends, capital gains, business and retirement income as well as all other forms income.
What is not included in earned income? ›
Earned income includes all of the following types of income: Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income.
What qualifies as other earned income? ›
Generally, this is income not from wages, self-employment, retirement, home or property rentals, or investments; from a tax perspective, this is any income not reported on a W-2 or 1099 form. When you are employed or sign a contract to perform temporary or freelance work, you will receive a tax form for this income.
How to calculate earned income? ›
This is any income from wages, salaries, tips or any other earned income that is taxable. Do not include any non-taxable benefits in this total. Also include any earnings from farms, farm partnerships or businesses that did not require payment of self-employment taxes.
What disqualifies you from earned income credit 2024? ›
If you received more than $11,000 in investment income or income from rentals, royalties, or stock and other asset sales during 2023, you can't qualify for the EIC. This amount increases to $11,600 in 2024. You have to be 25 or older but under 65 to qualify for the EIC.
California Qualifying Chart
| Number of Qualifying Children | State EITC Income Limits | State EITC Maximum Credits |
|---|
| None | $15,008 | $223 |
| 1 | $22,322 | $1,495 |
| 2 | $22,309 | $2,467 |
| 3 or more | $22,302 | $2,775 |
2020-2022 earned income credit amounts
| Number of children | Maximum earned income tax credit | Max AGI, married joint filers |
|---|
| 0 | $1,502 | $27,380 |
| 1 | $3,618 | $48,108 |
| 2 | $5,980 | $53,865 |
| 3 or more | $6,728 | $57,414 |
Apr 18, 2024
Social Security tax FAQs
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
How do I get the $16728 Social Security bonus? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
What kind of income does not count against Social Security? ›
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes.
Is earnings the same as adjusted gross income? ›
Key Takeaways
Gross income is the entire amount of money an individual earns, including wages, salaries, bonuses, and capital gains. Adjusted gross income (AGI) is an individual's taxable income after accounting for deductions and adjustments.
What is my earned income? ›
Earned Income. Earned income includes all of the following types of income: Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable.
Is adjusted gross income the same as income earned from work FAFSA? ›
The response indicates the adjusted gross income (AGI) reported on your parents' 2021 income tax return. AGI includes more than wages earned. For example, it can include Social Security and business income. If your parents filed a joint federal tax return, the AGI can be found on line 11 of the IRS Form 1040.
What line on 1040 is earned income? ›
For applicants who are tax filers, earned income (from IRS Form 1040, Line 1z plus Schedule 1, Line 3 and Line 6) is used to determine the total earned income for purposes of calculating the payroll tax allowance and employment expense allowance used in the student aid index (SAI) formula.
