MAGI (Modified Adjusted Gross Income)

Modified adjusted gross income
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What is Modified Adjusted Gross Income (MAGI) ?

MAGI starts with your Adjusted Gross Income (AGI), which is your total income minus specific deductions like student loan interest or retirement contributions.

To get your MAGI, you add back certain deductions to your AGI, such as:

  • IRA contributions
  • Student loan interest
  • Tuition deductions
  • Foreign earned income

The Difference Between MAGI and AGI ?

The difference between Adjusted Gross Income (AGI) and Modified Adjusted Gross Income (MAGI) lies in their calculation and the deductions they consider.

In summary, while AGI affects how much of your income is taxable, MAGI can influence which tax benefits you can receive.

Both are important figures in your tax calculations.

Adjusted Gross Income (AGI)

AGI is essentially your gross income minus specific adjustments.

These adjustments can include contributions to retirement accounts, alimony payments, student loan interest, and more.

It represents the income that’s subject to income tax.

Modified Adjusted Gross Income (MAGI)

MAGI builds upon your AGI by adding back certain deductions and tax-exempt interest that you might have subtracted to calculate your AGI.

This can include IRA contributions, student loan interest, and tuition expenses.

MAGI is often used to determine eligibility for certain tax deductions and credits.

Key Differences

  • AGI is used as a threshold for many deductions on your tax return.
  • MAGI is used to determine eligibility for certain tax benefits, like Roth IRA contributions and education tax credits.

What Does MAGI Matter ?

Your MAGI affects your eligibility for certain tax benefits.

For example, if your MAGI is below a certain threshold, you might qualify for the full amount of the Earned Income Tax Credit. If it’s above, you might get a reduced amount or none at all.

understanding your MAGI can help you maximize your tax benefits.

Examples of MAGI Calculation

Let’s say John has an AGI of $50,000. He made a $3,000 contribution to a traditional IRA and paid $1,000 in student loan interest. His MAGI would be calculated as follows:

MAGI = AGI + IRA contributions + Student loan interest
MAGI = $50,000 + $3,000 + $1,000
MAGI = $54,000

In this example, John’s MAGI is $54,000, which may affect his eligibility for certain tax benefits.

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