How To Calculate Adjusted Gross Income With Hourly Wage | Finance
By: Angela M. Wheeland | Reviewed by: Ashley Donohoe, MBA | Updated on March 13, 2019
Your adjusted gross income plays an important role in calculating your income tax for the year. Generally, your AGI includes all your gross income, including wages, dividends, pensions, unemployment benefits and self-employment income, minus any adjustment. The adjustments reduce your income and ease your tax burden. The Internal Revenue Service uses your AGI to calculate several tax credits and bases many deductions on a percentage of your AGI.
While it’s difficult to calculate your exact AGI from an hourly wage, you can calculate an estimate of what your AGI should be at the end of the year using one of the many tools, including a adjusted monthly income calculator.
Find your gross income
You can estimate your adjusted gross income from an hourly wage by first calculating your total gross income. You can start by determining the estimated number of hours you work in a year, noting that there are 52 weeks in a year.
For example, if you work 40 hours a week with a salary of $ 25 an hour, your total number of annual hours is 2,080, or 40 hours multiplied by 52 weeks. You can also start at a more manageable level by calculating how much you earn per week. For example, an hourly wage of $ 12.50 multiplied by 40 hours per week equals $ 500.
Multiply your total annual hours by your hourly wage to determine an estimate of your gross income. Using the previous example, if you work 2,080 hours per year and receive $ 20 an hour from your employer, your gross income is $ 41,600, or 2,080 times $ 20. You can also perform the same process using an adjusted monthly income calculator.
Looking for additional income
If you have income other than your salary from your job, such as small business income, second job income, or your spouse’s income, add it to the total. If you also plan to make $ 125,000 from your small business, for example, add that amount to your gross income. Using the previous example, your total gross income is $ 166,600, or $ 41,600 plus $ 125,000.
Your total gross income can be reduced by certain adjustments to arrive at your adjusted gross income. Some of the adjustments that can be deducted from your gross income include:
- $ 250 for the expenses of a qualified educator
- Up to $ 2,500 for interest on student loans
- Support payments made during the tax year
- Mortgage interest deduction, typically for all interest you pay up to $ 750,000 on your qualifying primary residence and even a secondary residence
- Contributions to IRS Eligible Charities
- Eligible medical expenses that exceed 7.5% (or 10% for the 2019 tax year) of your adjusted gross income
Once you have determined what adjustments you can make, add them up and subtract them from your gross income to determine your estimated AGI. Using the previous example, if your adjustments are $ 14,200, your AGI is $ 152,400, or $ 166,600 minus $ 14,200.
Declaration of your income
You will report your AGI on the IRS standard Form 1040. By using this form, you can take advantage of any deductions to which you may be entitled.