MAGI - AGI - Taxable Income

MAGI – AGI – Taxable Income

Modified Adjusted Gross Income – Adjusted Gross income – Taxable Income. The Internal Revenue Service has multiple levels of income of taxpayers to figure out eligibility for certain deductions and credits. Your modified adjusted gross income and adjusted gross income will be used for calculating what portion of the deductions and credits subject to an income threshold can be claimed. In this article, we will explain each of these levels of income and how to calculate them.

Adjusted Gross Income

Your gross income is the amount you earned during the course of the tax year. Aside from the Social Security and Medicare taxes, your gross income doesn’t include any tax. So you will start with your gross income and subtract the deductions you can claim on Schedule 1 – Additional Income and Adjustments to Income. You can also use Schedule 1 to report additional income earned other than the wages and self-employment income you have.

Once you subtract the deductions found on Schedule 1 from your gross income, you will get to your adjusted gross income. This will determine eligibility for most of the deductions and credits such as the child tax credit.

Modified Adjusted Gross Income

Your modified adjusted gross income is basically your adjusted gross income but certain deductions on Schedule 1 are excluded. Start figuring out modified adjusted gross income by calculating adjusted gross income first, and add back these deductions:

  • Excluded foreign income
  • Exclusion for adoption expenses
  • IRA deduction
  • Interest from EE savings bonds
  • Partnership losses
  • Passive income or loss
  • Rental losses
  • Social Security payments (taxable)

Once you add back these deductions claimed, you will get to your modified adjusted gross income. You will then use your MAGI to calculate if you qualify for the IRA deduction and premium tax credit.

Taxable Income

The taxable income is the total income you will be taxed. You will get to your taxable income by calculating adjusted gross income, then, subtracting the other deductions you can claim such as the standard deduction or if you itemize – the itemized deductions. Depending on your taxable income, you will be placed in either one of the tax brackets and pay taxes accordingly.

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