Adjusted Gross Income
Gross income consists of wages and salaries, unemployment compensation, tips and gratuities, interest, dividends, annuities, rents and royalties, up to 85% of Social Security benefits if the recipient's income exceeds a base amount, and certain other types of income. Among the items excluded from gross income, and thus not subject to tax, are public assistance benefits and interest on exempt securities (mostly state and local bonds).
Adjusted gross income is determined by subtracting from gross income: alimony paid, penalties on early withdrawal of savings, payments to an IRA (reduced proportionately based upon adjusted gross income levels if taxpayer is an active participant in an employer maintained retirement plan), payments to a Keogh retirement plan, and self-employed health insurance payments and moving expenses.
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