The Modified Adjusted Gross Income
On your tax return, Modified Adjusted Gross Income (MAGI) helps decide if you can qualify for certain tax benefits like the Child Tax Credit or deductions for your IRA contributions. You might come across guidelines that refer to income limits based on your modified adjusted gross income (AGI), but what does this actually mean? Let’s break down what MAGI is and why it’s important for your taxes.
How the MAGI Is Calculated?
Your modified AGI (Adjusted Gross Income) isn’t listed on Form 1040, but you can use Line 11 to start with your adjusted gross income. To figure out your modified AGI, you'll need to adjust your AGI by considering certain tax deductions and tax-exempt interest. So, while your adjusted gross income is your total income after some adjustments, the modified AGI is another step further in adjustments.
Sound complicated? Don't worry! File online with the eFile Tax App. Our app calculates both your AGI and modified AGI for you. This means you can easily claim all the tax credits and deductions you’re eligible for without needing to be a tax expert.
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Your Adjusted Gross Income (AGI) is a crucial number for determining how much of your income is taxable. It’s your income after taking into account specific deductions, known as adjustments to income. These adjustments can include things like student loan interest payments and Health Savings Account (HSA) contributions.
However, the standard deduction and the Qualified Business Income (QBI) Deduction, if you have self-employment income, are not included in the AGI calculation. Instead, these are subtracted later when calculating your taxable income.
To calculate your Modified Adjusted Gross Income (MAGI), start with your total gross income, calculate your AGI, and then add back any above-the-line deductions.
Here’s a simple breakdown using Form 1040 to see how AGI and MAGI are calculated—note that eFile does this for you automatically:
Step 1: Start with Form 1040 for the current year.
Step 2: Add up all your income listed on lines 1-8, which totals on line 9.
Step 3: Subtract adjustments to income from Schedule 1 to get your AGI, shown on line 11.
Step 4: To find your MAGI, add back those adjustments to your AGI.
Step 5: Next, subtract your standard deduction or itemized deductions, and any QBI deduction if applicable, to get your taxable income.
Step 6: eFile will then apply the tax brackets or rates and calculate your total taxes on line 16.
Your AGI is an important figure when it comes to taxes because it is needed as a form of identity verification when you file your taxes next year - learn more about filing with your AGI so you do not need to scramble to find it this year.
Modified AGI
Once your income has been adjusted (your AGI), this figure then gets modified to add back in some items, including foreign earned income, rental losses, the student loan interest that was deducted, and other items. For most taxpayers, your AGI and MAGI are the same figure; for those who pay student loan interest each year, it is your AGI with this deduction added back in.
Your MAGI is used to determine your eligibility for the following items:
Estimate your taxes here to get an idea of your gross income and adjusted gross income. You can then use this to better understand which credits and deductions you qualify to take, though eFile will determine this and calculate it all for you.
Use online tax filing software like eFile.com to handle these complicated calculations for you. eFile will claim all savings you are qualified for based on simple entries so you do not need extensive tax knowledge file your taxes online.
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