Key Takeaways
- Your AGI (adjusted gross income) is all of the income you bring in, minus certain adjustments, including IRA and self-employed retirement plan contributions, alimony payments (for divorce agreements prior to 2019), and one-half of any self-employment taxes paid.
- Your MAGI (modified adjusted gross income) is your AGI plus certain deductions you must “add back.” These deductions include IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, and more.
- Your AGI affects your eligibility for numerous tax credits, including the Child and Dependent Care Credit, credits for the elderly or permanently disabled, the Child Tax Credit, and the Earned Income Tax Credit.
- Your MAGI is used as a basis for determining whether you qualify for certain tax deductions, including whether or not your contributions to an individual retirement plan are deductible.
What is the difference between MAGI and AGI?
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.
Do you pay taxes on AGI or MAGI?
Neither AGI or MAGI necessarily represent your total taxable income. In order to get your federal taxable income, you’ll subtract either the Standard Deduction or all of your itemized deductions from your AGI. Additionally, if you live in a state that has an income tax, many states will use your AGI as a starting point for determining your state taxable income.
How do you calculate AGI?
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
TurboTax Tip: Many deductions—including your total itemized deductions, mortgage insurance premiums, charitable contributions, and medical deduction allowance—phase out or disappear altogether if you have an AGI above certain limits.
How does AGI affect on your taxes?
The amount of your AGI affects your eligibility for numerous tax credits, such as:
- Child and Dependent Care Credit
- Credit for the Elderly or the Disabled
- Adoption Credit
- Child Tax Credit
- American Opportunity Credit
- Lifetime Learning Credit
- Earned Income 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
How do you calculate MAGI?
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
How does MAGI affect 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 2024, if you were a single filer and covered by a retirement plan at work, you couldn't take an IRA deduction if you had a MAGI of $87,000 or higher. You also couldn't take a deduction for student loan interest in 2024 if you had a MAGI of $90,000 or higher filing as single, or $185,000 if married and filing jointly.
Does MAGI appear on your tax return?
Your modified adjusted gross income doesn’t appear on your tax return forms that are filed with the IRS, but it is used on certain IRS worksheets for calculating amounts that are used on your tax forms. For instance, you’ll be able to find your adjusted gross income on line 11 of your 2024 Form 1040.
To calculate MAGI, you’ll take your AGI and “add-back” certain deductions. Given that this is how MAGI is calculated, your MAGI will always be equal to or more than your AGI.
How can you reduce your AGI (and MAGI)?
The IRS uses your AGI and MAGI to determine whether you qualify for certain tax deductions or credits. If your AGI (or MAGI) is below certain thresholds, you may qualify for more tax deductions. Therefore, you may be wondering how you can reduce your AGI in order to capitalize on deductions for things like IRA contributions or student loan interest.
In theory, the way to reduce your AGI is to earn less income. But that isn’t a realistic solution since the trade-off between earning less income and the amount you can save through certain tax deductions wouldn’t usually be beneficial for your bank account.
There are other steps you can take to lower your AGI, such as:
- increase your 401(k) contributions
- increase your Health Savings Account (HSA) contributions
- make a deductible IRA contribution
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