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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 tax returns, 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 calculating the amount of tax credits and tax deductions that can help lower your tax liability. 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 what tax breaks are available to you.

READ: 2014 Federal Tax Rates, Personal Exemptions, and Standard Deductions

Adjusted Gross Income (AGI)

Your AGI is the most commonly used income figure. 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. These adjustments are listed on Page 1 of IRS Form 1040 and include items such as:

• Self-employed retirement and IRA contributions
• Half of self-employment taxes paid
• Alimony payments
• Health savings accounts or self-employed health insurance payments
• Student loan interest and qualified tuition costs

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 and the Child/Dependent Care 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.

READ: 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 are the same adjustments that were previously subtracted from your income to arrive at your AGI.) For example, the alimony payments that were subtracted from your income for AGI purposes must be added back to calculate your MAGI.

Some items that can increase your MAGI 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.

READ: Taxable Income vs. Non-Taxable Income


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.

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

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