What is Adjusted Gross Income (AGI) and Modified Adjusted Gross Income (MAGI)? – Councilor Forbes



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Your Adjusted Gross Income (AGI) is what it sounds like your gross income minus some adjustments. You will most often come across this term when filing your taxes.

Your AGI plays a vital role in determining the tax credits or deductions you can claim on your tax return. Generally, if your AGI is too high, you will not be eligible for tax deductions such as the interest deduction on student loans, education credits, and certain itemized deductions. Your AGI also determines your tax bracket and how much you will pay in income taxes.

The median AGI for the 2018 tax year (the latest data available) was $ 43,614, although this amount differs from person to person.

Here’s what you need to know about your AGI and why it’s so important.

What is Adjusted Gross Income (AGI)?

Adjusted Gross Income (AGI) is defined as your gross income less some adjustments. Your gross income only includes taxable income, such as:

  • Wages
  • Dividends
  • Business income Other types of income, such as capital gains and retirement distributions

To calculate your AGI, you may be able to subtract expenses from this gross income figure, including:

  • Educator’s expenses
  • Student loan interest
  • Support payments
  • Contributions to a retirement account

Your AGI will never be more than your total gross income reported on your tax return and, as a rule, it is less than your gross income. However, if you are not entitled to any deduction, your AGI may be equal to the total amount of your gross income. You can find your AGI on line 11 of your Form 1040.

How to calculate adjusted gross income (AGI)

To calculate your AGI, you must first start with your gross income, that is, any income you receive that is subject to tax. You will then need to subtract your adjustments from your total gross income to calculate your AGI.

Add up the gross taxable income:
  • Business income
  • Rental income
  • Salary, salary and tips
  • Unemployment benefits
  • State taxable refunds
  • Taxable social security
  • Dividends
  • Interest
  • Net sale of assets
  • IRA Distributions
  • Pensions and annuities
  • Other income, such as support payments received
Minus any adjustment:
  • Charitable donations
  • Educator’s expenses
  • Moving expenses
  • Deductible self-employment taxes
  • Health savings account deduction
  • Health insurance for self-employed workers
  • Alimony paid
  • Deduction of tuition and fees
  • Early penalty on savings withdrawals
  • Other adjustments
Total IGA Total gross income subject to tax less total adjustments

Adjusted gross income (AGI) vs modified adjusted gross income (MAGI): what’s the difference?

Modified adjusted gross income (MAGI) is slightly different from AGI. Unlike your AGI which is a number, your MAGI may differ depending on the tax credit or deduction for which you are claiming. But like the AGI, it can also determine any tax deductions or credits you may be entitled to on your tax return.

Typically, your MAGI is your adjusted AGI for certain expenses and income. Generally, your MAGI calculation is your AGI but adding the interest of the student loan. However, the IRS may calculate your MAGI differently based on the tax credit or deduction.

Here are some examples of how MAGI determines certain tax deductions and credits:

Premium tax credits: Your MAGI for Premium Tax Credits and Other Tax Savings for Health Insurance Marketplace is your AGI plus any untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.

Child tax credit: Your MAGI for Child Tax Credit and Child Tax Credit Advance Payments is your AGI plus certain foreign income sources.

The American Opportunity Tax Credit: Your MAGI for American Opportunity Tax Credit is your AGI as well as certain foreign income sources.

For many taxpayers, their MAGI total is the same or very close to their AGI, since the adjustments some taxpayers make will only slightly change the final number.

Deductions and tax credits calculated using your AGI or MAGI

After determining your AGI or MAGI, you can choose which tax deductions or tax credits you can claim on your tax return. Here are the main tax credits and deductions depending on your AGI or MAGI.


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