How to Reduce Your AGI for Taxes
Adjusted gross income controls more of your tax return than your tax bracket does. Here are the moves that actually lower it, and the popular 2026 deductions that do not.
Why AGI matters more than people realize
A long list of tax benefits phases out based on AGI or its close cousin, modified AGI (MAGI): the Child Tax Credit, IRA and Roth contribution limits, the SALT deduction cap, income-driven student loan payments, IRMAA Medicare surcharges, and the new senior, tips, and overtime deductions' own phase-outs. If you are near one of these thresholds, only moves that reduce AGI itself will help. See why below-the-line deductions do not touch AGI for the full explanation of why this distinction matters.
Moves that actually reduce AGI
| Move | 2026 limit | Reduces AGI? |
|---|---|---|
| Traditional 401(k) or 403(b) contributions | $24,500 ($32,250 if 50+) | Yes |
| Traditional IRA contributions | $7,500 ($8,500 if 50+, income limits apply) | Yes |
| HSA contributions | $4,400 self-only / $8,750 family | Yes |
| Self-employed SEP-IRA or Solo 401(k) | Up to 25% of net self-employment income | Yes |
| Student loan interest deduction | Up to $2,500 | Yes |
| Non-itemizer charitable deduction (new for 2026) | $1,000 single / $2,000 married | Yes |
| Health insurance premiums (self-employed) | Full premium amount | Yes |
These are all above-the-line deductions or adjustments, meaning they are subtracted before AGI is calculated on your Form 1040. A traditional (pre-tax) retirement account contribution is usually the biggest lever most workers have, since 401(k) limits are far higher than IRA limits.
What does NOT reduce AGI, even though people assume it does
The four new Schedule 1-A deductions from the One Big Beautiful Bill, tips, overtime, car loan interest, and the senior deduction, are all below-the-line. They cut your taxable income and your tax bill, but your AGI stays exactly where it was. So do the standard deduction and itemized deductions on Schedule A. If your goal is specifically to get under an AGI-based threshold, none of these help. See the full above vs below the line breakdown.
Does a 403(b) reduce AGI?
Yes, if it is a traditional (pre-tax) 403(b). It works exactly like a traditional 401(k): contributions come out of your paycheck before AGI is calculated. A Roth 403(b) does not reduce AGI, since Roth contributions are made with after-tax dollars. See the full 403(b) and AGI explainer for the details.
A worked example
A single filer with $165,000 of wages is $15,000 over the $150,000 threshold where the senior and overtime deduction phase-outs start, and also close to several other MAGI-based limits. Contributing $15,000 to a traditional 401(k) brings AGI down to $150,000, right at the line. That single move can preserve eligibility for multiple AGI-based benefits at once, something no below-the-line deduction can do.
Frequently asked questions
What is the best way to reduce my AGI?
Maximize traditional (pre-tax) 401(k) or 403(b) contributions first, since the limits are highest. Then traditional IRA and HSA contributions if you are eligible. All three reduce AGI dollar for dollar.
Do the new tips and overtime deductions reduce AGI?
No. They are below-the-line deductions that reduce taxable income but not AGI. See the full explanation.
Does the standard deduction reduce AGI?
No. The standard deduction is subtracted after AGI is calculated, to arrive at taxable income. It has no effect on AGI itself.
Is there a deduction for charitable giving that reduces AGI without itemizing?
Yes. Starting in 2026, non-itemizers can deduct up to $1,000 ($2,000 married) in cash charitable contributions above the line, which does reduce AGI. See the charitable deduction for non-itemizers.