Understanding AGI and MAGI

Adjusted Gross Income (AGI) and Modified Adjusted Gross Income (MAGI) are key figures used in tax calculations and financial programs.

What is Adjusted Gross Income (AGI)?

AGI is the gross income of an individual minus specific deductions. It is a fundamental measure used by the IRS to determine tax liability and eligibility for various deductions and credits. To calculate AGI:

• Start with gross income from wages, self-employment, interest, dividends, and other sources.
• Minus allowable deductions such as student loan interest, retirement contributions, and educator expenses. These are also known as 'For AGI Deductions' or 'Above-the-line Deductions'.

What is Modified Adjusted Gross Income (MAGI)?

MAGI is AGI with specific modifications, adding back certain deductions and exclusions. MAGI is used to determine eligibility for various government programs (e.g. Medicare, Medicaid), tax credits, and deductions. Each program's eligibility may use its own version of MAGI, so not all MAGI definitions are the same. Some key modifications include:

• Adding back excluded foreign income (such as Foreign Earned Income Exclusion, FEIE).
• Adding back tax-exempt interest income (e.g. municipal bonds).
• Including non-taxable portion of Social Security benefits.

Why are AGI and MAGI Important?

• IRS Free-File Program: AGI determines eligibility for free tax filing services, currently the limit is $84,000. However, individuals with simple tax situations but have AGI above $84,000 may try Copper River Tax's free tax preparation
• Medicare Programs: MAGI affects Medicare Part B and Part D premium adjustments.
• Clean Vehicle Credits: The IRS uses AGI to determine eligibility for electric vehicle tax incentives. Learn more about EV credit up to $7,500 Clean Vehicle Credit