AGI vs MAGI

The AGI is your income after certain allowable deductions, while MAGI adjusts your AGI by adding back certain excluded or deducted income to determine eligibility for specific tax programs or benefits.

Adjusted Gross Income (AGI) and Modified Adjusted Gross Income (MAGI) are both important figures in tax calculations, but they differ in the adjustments and modifications applied. Here’s a breakdown of each:

• Adjusted Gross Income (AGI): AGI is your gross income minus specific deductions, commonly referred to as “above-the-line” deductions. Gross income includes wages, dividends, capital gains, business income, and other sources of income. Deductions that reduce gross income to AGI include contributions to traditional IRAs, student loan interest, tuition and fees, alimony paid (for divorces before 2019), and others. AGI is used to determine eligibility for many deductions and credits, including itemized deductions and credits like the Child Tax Credit.

• Modified Adjusted Gross Income (MAGI): MAGI starts with your AGI and then adds back certain deductions or exclusions. The specific items added back vary depending on the tax benefit you are applying for. For example, MAGI is used to determine eligibility for Roth IRA contributions, education credits, and certain healthcare-related programs (like premium tax credits). Typical items added back to AGI to calculate MAGI include: Tax-exempt interest income (like interest from municipal bonds) Foreign earned income exclusion The student loan interest deduction (for some tax benefits) MAGI is essentially AGI adjusted further for specific tax rules.