Adjusted Gross Income (AGI) is your gross income minus specific deductions allowed by the IRS — called “above-the-line” deductions because they appear on Schedule 1 of Form 1040, before the standard or itemized deduction is applied. AGI is one of the most important numbers on your return: it determines eligibility for dozens of tax benefits, including the IRS Free File program.
What reduces your AGI (above-the-line deductions)
The most common AGI-reducing items:
- Self-employment tax — you deduct half of your self-employment tax (Schedule SE) from gross income
- Self-employed health insurance premiums — the full premium you pay for health insurance as a self-employed person
- SEP-IRA, SIMPLE IRA, Solo 401(k) contributions — retirement contributions by the self-employed
- Student loan interest — up to $2,500 per year (phase-out above $80,000 single / $165,000 MFJ for 2025 — verify for 2026)
- Alimony paid (pre-2019 divorce agreements only)
- Traditional IRA contributions — if you meet income and workplace retirement plan conditions
- Educator expenses — up to $300 for K-12 teachers
Note: mortgage interest, charitable contributions, and state taxes are itemized deductions — they do not reduce AGI, they reduce taxable income after AGI.
Why AGI matters: the $84,000 Free File gate
The IRS Free File program (distinct from the now-cancelled Direct File) allows taxpayers with AGI at or below $84,000 (for 2025 returns, filed in 2026 — verify current threshold) to file federal returns for free through IRS partner software companies. The AGI threshold uses Line 11 of Form 1040.
If your AGI is under $84,000, you may be eligible for IRS Free File regardless of your income complexity — though each partner has its own restrictions (age, state, return types). FreeTaxUSA is an IRS Free File Alliance partner and additionally allows free filing for any income level on its own platform.
AGI vs Modified AGI (MAGI)
Many tax benefits use Modified AGI (MAGI) rather than plain AGI. MAGI typically adds back certain items — for example, for Roth IRA eligibility, MAGI adds back traditional IRA deductions, student loan interest deductions, and foreign income exclusions. Each benefit has its own MAGI definition. Tax software calculates this automatically.
How software handles AGI
Tax software calculates AGI automatically as you enter your income and above-the-line deductions. Line 11 of Form 1040 is the result. You do not need to calculate it manually — the software does it. The relevant check is whether your final AGI lands below the $84,000 Free File threshold if you’re trying to qualify for partner-program free filing.