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

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Your adjusted gross income is exactly what it sounds like. This is your gross income, which is the money you earn before taxes and payroll deductions, minus certain adjustments. You will most often encounter AGI when filing your taxes.

It 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 student loan interest deduction, education credits, and certain itemized deductions. Your AGI also determines your tax bracket and how much you will pay in income taxes.

The median U.S. AGI is $43,614, according to the most recent data from the IRS, which is from the 2018 tax year.

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

What is Adjusted Gross Income?

AGI is defined as your gross income minus certain adjustments. Your gross income only includes income subject to tax, 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 certain expenses from your gross income, including:

  • Educator expenses
  • Interest on student loans
  • Alimony
  • Contributions to a retirement account

Your AGI will never be greater than your total gross income reported on your tax return; usually 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, which is any income you receive subject to tax. You will then need to subtract your adjustments from your total gross income to calculate your AGI.

Add the gross income subject to tax:
  • business income
  • Rental income
  • Salary, wages and tips
  • Unemployment benefits
  • Taxable state refunds
  • Taxable social security
  • Dividends
  • Interest
  • Net disposal of assets
  • IRA Distributions
  • Pensions and annuities
  • Other income, such as alimony received
Minus any adjustments:
  • Charitable donations
  • Educator expenses
  • Moving expenses
  • Deductible taxes on self-employment
  • Health savings account deduction
  • Self-employed health insurance
  • Child support paid
  • Tuition and Fee Deduction
  • Early penalty on savings withdrawals
  • Other adjustments
Total IGA Total gross income subject to tax less total adjustments

Adjusted gross income (AGI) and 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 you are trying to claim. But like the AGI, it can determine any tax deductions or credits you may be entitled to on your tax return.

Generally, your MAGI is your AGI adjusted for certain expenses and income. Typically, your MAGI calculation is your AGI with student loan interest added. However, the IRS may calculate your MAGI differently depending 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 Marketplace Health Insurance (“Obamacare”) is your AGI plus any untaxed foreign income, non-taxable Social Security benefits, and exempt interest of tax.

Child tax credit: Your MAGI for child tax credit and child tax credit advance payments is your AGI plus certain sources of foreign income.

The U.S. Opportunity Tax Credit: Your MAGI for US Opportunity Tax Credit is your AGI plus certain sources of foreign income.

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.

Tax deductions and 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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