What Happens if Your Federal Adjusted Gross Income Is Negative?

The tuition and fees deduction can significantly decrease adjusted gross income.
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The amount of federal income tax you pay is based on your adjusted gross income. You calculate your AGI by adding up your income from all sources, and then subtracting the total amount of all allowed deductions. These deductions include items such as teacher expenses, rental losses, student loan interest, alimony paid, eligible moving expenses, and qualified higher education expenses.

When Adjusted Gross Income Is Negative

A negative AGI is uncommon for individuals, but not impossible. For example, suppose your total income is $10,000 and you have a total of $12,500 in deductions for items such as alimony, rental property losses, moving expenses and tuition and fees. After subtracting this from your $10,000 total income, you have a negative AGI of $2,500.

Tax Consequences

A negative AGI means you would have a $0 federal tax liability and would be eligible for a refund of any federal taxes you had withheld or paid via estimates. You might also be eligible for refundable tax credits, such as the earned income credit, child tax credit, or qualified education credits. Note that you are allowed either an education deduction or an education credit, but not both.

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