OVERVIEW
Your adjusted gross income, or AGI, is an important line item on your taxes, as it affects your eligibility for certain tax benefits. The same is true of your modified adjusted gross income, or MAGI.
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AGI vs. MAGI
Typically, your MAGI (modified adjusted gross income) and AGI (adjusted gross income) are close in value to one another. However, the small adjustments that tweak your AGI into your MAGI could have an important bearing on your overall tax return.
AGI calculation
Your adjusted gross income is all of the income you bring in, minus certain adjustments. You can find the allowable reductions to your income on the front page of your Form 1040.
Commonly used adjustments include the following:
- IRA and self-employed retirement plan contributions
- Alimony payments (for divorce agreements prior to 2019)
- Self-employed health insurance payments
- One-half of any self-employment taxes paid
Other adjustments used in calculating AGI include the following:
- Health savings account deductions
- Penalties on the early withdrawal of savings
- Educator expenses
- Student loan interest
- Moving expenses (for tax years prior to 2018)
- Tuition and fees
- Deductions for domestic production activities (for tax years prior to 2018)
- Certain business expenses of performing artists, reservists, and fee-basis government officials
AGI effects on your taxes
The amount of your AGI affects your eligibility for numerous tax credits, such as,
- The child and dependent care credit
- Credits for the elderly or permanently disabled
- The adoption tax credit
- The Child Tax Credit
- The American Opportunity & Lifetime Learning tax credits
- The Earned Income Tax Credit
Many deductions phase out or disappear altogether if you have an AGI above certain limits. Deductions affected by your AGI include the following:
- Total itemized deductions
- Miscellaneous itemized deductions (for tax years prior to 2018)
- Mortgage insurance premiums
- Charitable contributions
- Medical deduction allowance
MAGI calculation
To calculate your modified adjusted gross income, take your AGI and "add-back" certain deductions. Many of these deductions can be rare, so it's possible your AGI and MAGI can be identical. Different credit and deductions can have differing add-backs for your MAGI calculation. According to the IRS, your MAGI is your AGI with the addition of the appropriate deductions, potentially including:
- Student loan interest
- One-half of self-employment tax
- Qualified tuition expenses
- Tuition and fees deduction
- Passive loss or passive income
- IRA contributions
- Non-taxable social security payments
- The exclusion for income from U.S. savings bonds
- Foreign earned income exclusion
- Foreign housing exclusion or deduction
- The exclusion under 137 for adoption expenses
- Rental losses
- Any overall loss from a publicly traded partnership
MAGI effects on your taxes
Your MAGI is used as a basis for determining whether you qualify for certain tax deductions. One of the most notable is in determining whether or not your contributions to an individual retirement plan are deductible.
For example, as of 2022, if you were a single filer and covered by a retirement plan at work, you couldn't take an IRA deduction if you had an MAGI of $78,000 or higher. You also couldn't take a deduction for student loan interest in 2022 if you had a MAGI of $85,000 or higher filing as single, or $175,000 if married and filing jointly.
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