The difference between MAGI and AGI
| Feature | AGI | MAGI |
|---|---|---|
| Definition | Your gross income minus specific adjustments | Your AGI with certain deductions and exclusions added back in |
| Where it’s found | Form 1040 | Doesn’t appear on your return |
| Common add-backs | None | Tax-exempt interest, foreign earned income exclusion, non-taxable Social Security benefits (for some purposes) |
| What it’s used for | Your starting point for taxable income and whether to itemize | Eligibility tests for Roth IRA contributions, the Premium Tax Credit, Net Investment Income Tax, IRMAA, education credits, and more |
Source: Internal Revenue Service (1, 2)
AGI is your gross income minus certain adjustments independent of credits and deductions. MAGI is a calculation the IRS asks you to run separately, and it can come out differently depending on which credit or deduction you’re testing for qualification.
How to calculate MAGI
- Find your adjusted gross income on Form 1040.
- Identify which credit, deduction, or program you’re testing eligibility for.
- Add back the specific items that apply to that benefit.
The result is your MAGI, but only for that purpose. You may need to run the calculation again with a different add-back list if you’re checking eligibility for a different credit or deduction.
What to add back to AGI to calculate your MAGI
The items added back depend on the specific tax benefit you’re testing, but common examples include:
- Tax-exempt interest
- The foreign earned income exclusion and any foreign housing exclusion or deduction
- Excluded US savings bond interest used for education expenses
- Deducted student loan interest
- Non-taxable Social Security benefits
- Deductible traditional IRA contributions
What MAGI is used for
The list below covers the most common MAGI-based tests:
- Roth IRA contributions
- Traditional IRA deduction
- Premium Tax Credit (ACA marketplace)
- Net Investment Income Tax
- Medicare IRMAA surcharge
- Education credits (AOTC and LLC)
- Student loan interest deduction
How to lower your MAGI
If your MAGI is sitting close to a threshold, there are a few ways you can pull it back down, though which ones work depends on which MAGI test you’re trying to pass:
- Contribute to a pre-tax employer retirement plan (401(k), 403(b), etc.) or make a deductible traditional IRA contribution. This lowers your AGI and MAGI for most purposes, though how tax deductions work can get more complicated if the deduction itself gets added back for specific tests.
- Contribute to a health savings account (HSA) if you have a high-deductible health plan.
- Time large income events, like Roth conversions or capital gains, for years when your income is otherwise lower.
- If you’re near the Premium Tax Credit income threshold or an IRMAA bracket, consider spreading retirement account withdrawals across more than one tax year.
