Skip to main content

Adjusted Gross Income on W2: How to Calculate

Published March 22, 2021

3 minute read

Cora Walker

By Cora Walker

Getting tax terms straight can be a dizzying exercise. Remembering the difference between your income, investment income, gross income, and your adjusted gross income is important, but it’s tricky when you only need to think about it once a year. Locating and calculating your adjusted gross income using your W2 is especially important, as that is where you factor in your deductions.

Deductions are, hopefully obviously, pretty good. Getting them right could mean paying less in income taxes than you would otherwise. The stage where you calculate your adjusted gross income from your W2 is key for making sure you have all the deductions available to you. But how do you calculate your adjusted gross income in the first place, and what are some pitfalls to look out for?

Gross Income

First, start with your gross income.

The term “gross income” for tax purposes refers to how much you make annually before taxes. For instance, if you are salaried and your contract says you are supposed to make $45,000 a year, you would think that would be $3,750 a month. However, you have probably noticed your paychecks are a lot lower than that. That is due to your employer withholding taxes every time they pay you. This is one benefit of traditional employment and one less thing for you to worry about.

If you have freelance or investment income, you’ll need to factor that in as well. If you have a side gig or a small business, we know you think a lot about taxes. Remember that your gross income is what you make in total before you send in your quarterly taxes.


Deductions help the world go round or at least help take the sting out of tax season. How many children you have, charitable donations, your contribution to your 401k, your medical bills, or the interest on your student loan debt can all be possible deductions. You can check out a more complete list of deductions here, but the basic idea is that tax law acknowledges the stressors our life situations may put on our finances. It’s not perfect as it’s not always fair about what it chooses to incentivize. But if you have access to a break, you may as well take it.

We’ve talked before about how freelancers and small business owners are at a little bit of an advantage here. Think about everything you pay to advance your work or small business. It’s important not to get obscene with your deductions, but your situation means you have a lot more options than your friend who works in an office.

A quick note: while charitable donations are tax deductions, donations to political parties are not. Most contributions to socially-minded organizations should still be tax-deductible, but it’s something to check before deciding where and how much to contribute.

Adjusted Gross Income

Finally! Lets talk about adjusted gross income.

Your adjusted gross income is your gross income on your W2 minus your major deductions for the year. This decreases your taxable income, which can have an impact on your tax bracket.

For instance, say your gross income is $45,000, but you have $2000 worth of deductions for the year. This means your adjusted gross income is $43,000. The truth is that so long as you have everything in order and can back up all of your deductions, calculating your adjusted gross income is pretty straightforward.

Staying Organized is Essential

Honestly, the hardest part of calculating your adjusted gross income is just understanding all the terminology involved. That, and keeping your receipts in order.

The terminology is dense because taxes are very specialized. The language needs to be precise. But that still sometimes makes it harder for laypeople to get all the benefits they possibly can. Taking the time to do a quick Google search when you get your W2 just to make sure you understand all the terms and descriptions.

You need to be able to back up every deduction you claim. Make sure you keep detailed records, just in case something is brought into question. Likewise, making claims you are not entitled to is illegal. However, it’s always possible you have deductions you weren’t aware of. It’s just a little bit of extra work that can help April run more smoothly and leave you figuring out what you’re going to do with that tax return.

Gross Adjusted Income W2 Form


Cora Walker

Cora Walker


Cora is a Northwest-based writer and editor who wants to make information as accessible as possible in the internet age. Video games are this writer’s primary vice. With a degree from the University of Washington as well as 5+ years of experience in web writing and publishing, Cora is here to share financial tips from experts and talk about good habits.

Explore Taxes


What Are The New 2021 Tax Brackets?

Each year, the Internal Revenue Service (IRS) updates their marginal income tax rates. In other words, they issue new tax brackets for the year ahead to reflect the ongoing impact of inflation. For 2021, there are seven income tax brackets in the United States: 10%, 12%, 22%, 24%, 32%, 35% and 37%. These will be […]

Read More about Post Title

7 minute read


Payroll Tax Deferment Guide: Everything You Need to Know

On March 11, 2021, President Biden signed the American Rescue Plan Act into law. It’s a $1.9 trillion bill that extends many forms of federal assistance for businesses impacted by the Covid-19 pandemic. Two of the provisions found in the ARPT are the employee retention credit and the employer payroll tax deferral. These provisions are […]

Read More about Post Title

3 minute read


Reasons Why Your Tax Refund is Delayed

The Internal Revenue Service is currently swamped. Despite that admission, you might still be anxiously waiting for your expected tax refund. The IRS says they have already processed more than 91 million individual returns from 2020. Additionally, more than 68 million refunds have already been issued to taxpayers. However, the agency is still holding more […]

Read More about Post Title

9 minute read

See All In Taxes

More from WalletGenius

TSP Loans Loans

TSP Loan: Everything You Need To Know

TSP loans are specialized loans designed for employees of the United States federal government. They offer federal employees access to a unique loan class that uses their retirement plans to finance their borrowing needs. Financial advisors often liken them to the 401(k) loans available to members of the general public. Yet, TSP loans differ from […]

Read More about Post Title

5 minute read

Woman enjoying a sudden windfall of money Financial Advice

What To Do With a Sudden Windfall

Getting an unexpected windfall can cause plenty of emotions. On one hand, there’s the hoopla of getting a sudden cash infusion. It’s simple human nature to go wild when a large sum of extra money shows up unexpectedly. After all, it’s not earmarked for any of your normal expenses. It’s just extra money. Can you […]

Read More about Post Title

8 minute read

Young couple worried about finances Save Money

How To Tell If Your Retirement Is In Jeopardy

One of the most common financial concerns for adults these days is retirement. It comes up over and over again. For anyone concerned about money, retirement is a very big problem to confront. Current (and future) generations of working-aged Americans aren’t exactly fairing well, when it comes to retirement savings. Some studies have shown that […]

Read More about Post Title

7 minute read

Young woman worried about student loans Perkins loans Student Loans

Perkins Loans: Everything You Need To Know

A Perkins Loan was a federal program that provided low-interest loans to college students who demonstrated exceptional financial need. The program, which operated as the “Perkins Loan Program,” no longer exists. It was discontinued on September 30, 2017. The final disbursements were permitted through June 30, 2018. Although the program has been discontinued, many current […]

Read More about Post Title

5 minute read

Capital budgeting paperwork Budgeting

Capital Budgeting: A Complete Guide

Capital budgeting is a business term used to describe the process of determining how to best use the capital the company has on hand. Should they expand? Should they reinvest in a new factory to increase capacity? Is it profitable to acquire another business for expansion? In other words, capital budgeting is the process of […]

Read More about Post Title

7 minute read

Woman checking her credit score Credit

What You Need to Know About Free Credit Scores

You probably know that your credit score is an important aspect of your finances. Your credit score goes beyond just helping you get a loan with a good interest rate. It can also influence your insurance rates and even impact what happens when you sign up for internet or a cell phone plan. Knowing your […]

Read More about Post Title

7 minute read

Trusted provider of accurate rates & financial information