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Adjusted Gross Income (AGI) vs. Modified Adjusted Gross Income (MAGI)

What’s the Difference Between Your AGI and MAGI?

When it comes to calculating your taxes, you will often hear two different terms regarding income: Adjusted Gross Income (AGI) and Modified Adjusted Gross Income (MAGI).

Both AGI and MAGI are important in determining your tax liability, as well as the amount of tax credits and tax deductions that can help lower your tax balance. Your AGI and MAGI will likely be close to each other in value. In many cases, a taxpayer’s AGI and MAGI are the same number, depending on what type of expenses they had during the year.

Understanding the difference between your AGI and MAGI will help you determine which tax rate(s) apply to you and what tax breaks are available to you.

RELATED: 2019 Federal Tax Rates, Brackets, & Standard Deductions

Adjusted Gross Income (AGI)

Your AGI is the most commonly used income figure. It generally includes all of the income you earn, minus certain adjustments. It’s used to determine your income bracket for tax purposes.

AGI refers to your total income for the year, minus certain adjustments that are allowed by the IRS. These adjustments are listed in the Instructions for Form 1040 and on Schedule 1 (Form 1040 or 1040-SR). They include items such as:

  • Educator expenses
  • Certain business expenses
  • Health Savings Account (HSA) deduction
  • Moving expenses
  • Deductible portion of self-employment tax
  • Self-employed SEP, SIMPLE, and qualified plans
  • Self-employed health insurance deduction
  • Penalty on early withdrawal of savings
  • Alimony paid
  • Individual Retirement Account (IRA) deduction
  • Student loan interest deduction
  • Qualified tuition and fees for education

Once the allowed items are subtracted from your income, you arrive at your AGI.

Your AGI determines whether or not you qualify for certain tax credits, such as the Earned Income Credit. There are also various tax deductions that are dependent on your AGI — including your total itemized deductions, mortgage insurance premiums, and medical deduction allowances.

RELATED: Top 5 Tax Deductions for Individuals

Modified Adjusted Gross Income (MAGI)

Your MAGI differs from your AGI in that it may be higher, with certain adjustments added back. These adjustments may include items that were previously subtracted from your income to arrive at your AGI (see above section). For most taxpayers, their MAGI is equal their AGI before subtracting any deduction for student loan interest.

Some items that can increase your MAGI may include the following:

  • Tuition-related costs and deductions
    • IRA contributions
    • Rental losses
    • Student loan interest

Like your AGI, your MAGI can determine whether you qualify for certain tax benefits. One of the most popular is the ability to deduct your IRA contributions on your tax return. However, you may not qualify for that deduction if your MAGI is above a certain level.

RELATED: Taxable Income vs. Non-Taxable Income

Conclusion

If you hire a tax professional to prepare your tax return, they can calculate your AGI and MAGI for you. They can also discuss how both of these amounts affect the tax credits and deductions you are eligible for. Most tax preparation software programs will also calculate those numbers for you.

If you are preparing your own tax return, you will need to research which tax breaks are affected by AGI and MAGI so you can determine the amount of your tax savings.

RELATED: Who Has to File a Federal Income Tax Return?


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