Definition
The term used by the Internal Revenue Service (IRS) to describe a taxpayer's gross income minus a set of standard adjustments is Adjusted Gross Income, or AGI. Corrections that are made to gross income include costs such as moving expenses, alimony, tax penalties on early withdrawals, and contributions to an individual retirement account.
Explanation
Each year, IRS Form 1040 is used to calculate the income taxes due the federal government. Personal exemptions and itemized deductions are subsequently subtracted from adjusted gross income to determine an individual's taxable income.
Some taxpayers may be required to perform more detailed calculations, which can involve a related measure known as Modified Adjusted Gross Income (MAGI). Depending on the use of this measure, line items such as tax exempt interest received and Social Security benefits may be added to AGI.