By Tax Day, the day our income tax returns are due, isn’t a day most Americans look forward to. It rolls around each year, typically on April 15th, and still catches people off-guard who feel like they just submitted their previous income tax return. If you fall into this camp, it’s not surprising, considering how complicated tax returns have gotten even for the average taxpayer.
However, if a taxpayer has a job that is their main source of income, they can typically calculate their adjusted gross income by using their last pay stub for the tax year.
This article will show how to calculate a taxpayer's adjusted gross income using their pay stub. However, it’s important to first quickly review the information a typical pay stub provides.
What is Adjustable Gross Income?
Adjustable gross income is a taxpayer's total taxable income before the federal government's allowable deductions and includes all income earned in addition to what was reported on the W-2. Other forms of income added to calculate adjusted gross income can include dividends, pensions, capital gains, etc. Adjusted gross income is shown on line 11 of a U.S. Individual Income Tax Return, Form 1040.
Above-the-Line vs. Below-the-Line Deductions
"Above-the-line" and "below-the-line" refer to the two main types of tax deductions.
Above-the-line deductions are the first ones you can claim. These are things like 401(k) contributions and student loan interest. Most people can use these deductions, and when you take them out of your gross income, you get your adjusted gross income.
Once you reach your adjusted gross income, you can claim the standard deduction, a fixed amount that depends on your filing status (single, married filing jointly, married filing separately, head of household, or qualifying widow(er)).
Some people may be able to claim below-the-line deductions, which are also called itemized deductions. This happens more often in high-income households with a lot of qualifying expenses, like giving to charity and paying a lot of interest on their mort
Most people will pay the least amount of tax with the standard deduction.
What Information Does a Pay Stub Include
Even though each state may have specific rules on the information a pay stub must include, the important pieces of information are typically the same for states requiring employers to give their employees pay stubs. Listed below are typically the main earnings and deductions components found on a pay stub.
Gross Pay
Gross pay, also known as gross earnings or gross wage, is an employee's total pay for that period. This can be derived by multiplying the hourly wage by hours worked or by dividing an annual salary by the number of pay periods. There will also be gross pay year-to-date (YTD), which is simply the gross income earned to date. Gross pay may also be broken down into its components, such as commission, vacation pay, etc.
Federal Income Tax
Employers are required to withhold federal income taxes from their employee's paychecks and remit the taxes withheld to the Internal Revenue Service (IRS) of the Federal Government. Paystubs will typically have the federal income tax deducted for the pay period on the pay stub, as well as the YTD total.
State Income Taxes
Employers must withhold state income taxes from their employee's paychecks and remit them to their respective states. Paystubs will typically have the state income tax deducted for the pay period of the pay stub and the YTD total. There are nine states where employees do not pay income tax to their state governments, and these include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Federal Insurance Contribution Act Taxes
The Federal Insurance Contribution Act (FICA) includes Medicare and Social Security statutory federal tax contributions. Employers are required to withhold these payroll taxes for each pay period and remit them to the IRS of the Federal Government.
Net Pay
Net pay is the amount of cash the employer pays their employee after they have withheld the required federal taxes, state taxes, Medicare, and Social Security federal payroll taxes. It is important to note that in addition to withholding taxes, it is also common to have other deductions on a pay stub for the pay period, such as for retirement and insurance that reduce net pay, also known as net income.
Calculating Adjusted Gross Income from a Pay Stub
A person can reasonably calculate their adjusted gross income from their last paycheck stub stub of the tax year, especially if they only have one source of employment income. However, if the taxpayer has more than one source of income or can take advantage of specific deductions, the calculation becomes more complicated.
Adjustments to Taxable Income
Taxpayers are required to pay tax on additional income earned through the tax year in addition to YTD gross pay noted on their pay stub; however, they will also be able to reduce their income with allowable deductions. The information below includes a brief explanation of additions and subtractions to determine adjusted gross income, followed by three adjusted gross income calculation examples.
Additions to Income
Taxpayers must pay tax on other income earned in the tax year in addition to their main source of income, such as unemployment compensation, alimony, dividends, and so on. This income will be added and then summed on line 9 of Schedule 1 of Form 1040.
Subtractions to Income
Taxpayers can reduce their gross income with allowable adjustments that include, in part, educator expenses, moving expenses, paid alimony, student loan interest, etc. All permissible adjustments to income will be summed and reported on line 26 of Schedule 1 of Form 1040.
AGI Calculation Example #1
John Smith is 25 years old and only has one source of income. His last pay stub of the year noted a gross income of $45,000 YTD. John only has one source of income and does not qualify for the allowable deductions such as educator or moving expenses. To calculate his adjusted gross income, we only need to use his reported gross pay noted on his last pay stub of the year.
Adjusted Gross Income = $45,000
AGI Calculation Example #2
Peter Smith is a 30-year-old school teacher, and his last pay stub of the year notes his gross pay of $35,000, which matches the annual salary in his employment contract. John also works a part-time job to help pay off the student loan required to become a teacher. John will use his last pay stub of the year from his teaching job and a part-time job to determine his total income. He will then determine the amount of interest he paid on his student loans for the year and then calculate his adjusted gross income.
- Teaching Pay Stub YTD Gross Pay = $35,000
- Part-time Job Pay Stub YTD Gross Pay = $6,000
- Total Income = $41,000
- Interest Paid on Student Loan = ($1,500)
- Maximum Educator Expense Deduction = ($250)
- Total Deductions = ($1,750)
- Total Income = $41,000
- Total Deductions = ($1,750)
Adjusted Gross Income = $39,250
AGI Calculation Example #3
Sarah Smith is 45 years old, has one primary source of income, and also receives alimony from her ex-husband. Her annual salary is $55,000, is paid bi-monthly, and her last pay stub of the year shows a gross income equaling her annual salary of $55,000. Sarah’s yearly alimony income is $12,000.
- Pay Stub YTD Gross Pay = $55,000
- Annual Alimony Payments = $12,000
Adjusted Gross Income = $67,000
Form W-2
Employers have until January 31st of each year to provide their employees with a Form W-2. The W-2 will include the total income earned, exact taxes withheld throughout the year, pre tax contributions and paid health insurance premiums, and so on. The employer-issued W-2 should have everything a taxpayer needs to file their income tax for their employment. The gross pay listed on the W-2 should also match the gross pay on the employee's last pay stub and is a good check to ensure the correct information is reported.
Can You Find Adjusted Gross Income on Your W-2?
No, W-2 Forms do not include AGI. Form 1040 will be used to compute your adjusted gross income (AGI). W-2 amounts are included in your AGI. However, it is not primarily dependent on those figures.
If you are paid, your employer will complete a W-2 form to record your earnings and mail it to you. Box 1 shows the entire amount of "wages, tips, and other remuneration" you received. However, keep in mind that this is not your adjusted gross income.
The total amount of your taxable income from that employment may be seen in Box 1 of your W-2 form. It excludes various above-the-line deductions that are part of calculating your adjusted gross income. For example, your total "wages, tips, and other remuneration" does not include funds paid for health savings account contributions or student loan interest.
If you work part-time for more than one company or switch employment during the year, you will receive multiple W-2 forms (one for each employer). You may also have income from sources other than your W-2, such as renting a property you own.
Non-Yearend Pay Stub
It’s easy to understand how to calculate adjusted gross income from a year-end pay stub as it should be identical to an employee's Form W-2. However, how would you calculate adjusted gross income from a non-yearend pay stub? You can calculate an estimated adjusted gross income from any pay stub, but it won't be the final number until the fiscal year has ended.
For example, a taxpayer has a yearly salary paid over 24 pay periods per year. To calculate the estimated adjusted gross income for the year, they can simply take the YTD gross income on their pay stub and add anticipated income from the remaining pay periods.
How to Find AGI if You E-File?
Remember that you may receive and utilize an IP-PIN (Identity Protection - Personal Identification Number) instead of your 2023 AGI during the tax return e-Filing procedure.
Here are three methods for determining your 2023 Adjusted Gross Income, or AGI:
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Sign in to your eFile.com account and see and/or download your PDF tax return file from the My Account page if you e-filed your 2023 tax return on eFile.com. Line 11 of your 2023 Form 1040 will include your prior-year AGI.
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Find your AGI on Line 11 of IRS Forms 1040, 1040-SR, and 1040-NR if you filed elsewhere and have a copy of your 2023 Tax Return. Form 1040-NR cannot be e-filed anywhere; for more information on the 1040 forms, see here.
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If you did not know eFile your 2023 Tax Return via eFile.com and did not have a copy of your 2023 1040 Form, you may request a free transcript from the IRS online.
Note: This is a free service given by the IRS, and your previous year's AGI will be reflected as ADJUSTED GROSS INCOME on the transcript.
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