Adjusted Gross Income
Definition
Adjusted gross income (AGI) is your total income minus specific deductions allowed by the IRS, such as contributions to retirement accounts, student loan interest, and self-employment taxes. AGI serves as a key figure in determining tax liability and eligibility for various tax benefits. In personal injury cases, AGI and related income documentation are used to calculate lost wages and diminished earning capacity.
How It’s Used in Personal Injury Cases
When you seek compensation for lost income due to an accident, you must prove what you were earning before the injury. For employees, this typically involves pay stubs and employer verification letters. For self-employed individuals or those with variable income—such as freelancers, contractors, or small business owners—tax returns showing AGI provide a more complete picture of annual earnings.
The IRS defines AGI on Form 1040, and this figure may be requested during discovery or used by economic experts to project future lost income in catastrophic injury cases.
Practical Example
A rideshare driver is seriously injured in a collision caused by a distracted driver. Because his income varies month to month, the insurance company questions how much he actually earned. His attorney submits three years of tax returns showing consistent AGI of approximately $48,000 per year. This documentation establishes a reliable baseline for calculating the income he lost during recovery and any future reduction in his earning capacity.
Why It Matters to Your Case
Insurance companies often challenge lost wage claims, especially for self-employed individuals or those without traditional pay stubs. Providing clear documentation of your AGI strengthens your claim and makes it harder for adjusters to undervalue your losses. If your income has grown over time, showing multiple years of returns can also support arguments for future lost earnings based on your career trajectory.
Key Takeaway
Adjusted gross income is a tax figure used to document and verify your earnings in lost wage claims. Accurate income records are essential for recovering fair compensation for time missed from work.