How To Find Modified Adjusted Gross Income

Adjusted Gross Income (AGI) Vs. Modified Adapted Gross Income (MAGI)

Final updated: Jan seven, 2022

One time a year, when tax time comes effectually, you go the terms gross income, adjusted gross income (AGI), and modified adjusted gross income (MAGI) shoved in your face… a lot. And since you're simply faced with having to know what these somewhat cryptic taxation terms mean in one case a twelvemonth, they are very easy to forget. Heck, I already did.

And so, what I'chiliad going to practise in this post is highlight what each of these terms mean, where you lot will see them, and why they are important to know so that y'all can refer back to this mail service in the future when the ambivalence returns.

Gross Income (aka Gross Earnings)

We'll start with the easy 1. Gross income is simply the total coin, or income, that y'all receive per year before any deductions and taxes are taken out. Gross income is too referred to as 'gross earnings', 'total income', or simply 'gross'. At offset, you might just think, OK, it'southward my salary, uncomplicated enough. Not quite. The IRS defines gross income as the net sum of all of the following income sources on your 1040:

wages
salaries
tips
taxable involvement
ordinary dividends
taxable refunds, credits, or offsets of country and local income taxes
alimony received
business income (business losses are subtracted)
capital gains (majuscule losses are subtracted)
other gains
taxable IRA distributions
taxable pensions and annuities
rental real estate
royalties
farm income (farm losses are subtracted)
unemployment compensation
taxable Social Security benefits
and other income

All of these income sources add upwards to the 'total income' amount on line 9 of your 1040.

In some cases, yous may be below the threshold of minimum income to file taxes, and not be legally required to submit a return. Notwithstanding, you may still benefit from doing then, if you are eligible for at to the lowest degree ane of the many refundable taxation credits available.

Adjusted Gross Income (AGI)

Thankfully, nosotros aren't taxed on gross income. Nosotros go to subtract a number of deductions. Your gross income minus all of these deductions is what becomes your adjusted gross income (AGI) or "net income". What deductions do you get to subtract from your gross income on your 1040?

IRA and self-employed retirement plan contributions (east.one thousand. SEP IRA, Elementary IRA, and qualified plans)
Pension payments (for divorce agreements prior to 2019)
Self-employed wellness insurance payments
One-half of whatsoever self-employment taxes paid
Health Savings Account (HSA) contributions
Penalties on the early withdrawal of savings
Educator expenses
Student loan interest
Educatee tuition and fees
Sure business expenses of performing artists, reservists, and fee-basis regime officials

Adjusted gross income is reported on line 11 of your 1040.

Neither the standard deduction or itemized deductions are factored into your adjusted gross income.

Modified Adapted Gross Income (MAGI)

Modified adjusted gross income (MAGI) are important because they are used to calculate income phaseout limits that indicate what your Roth IRA, SEP IRA, SIMPLE IRA and traditional IRA maximum contribution limits are. And doing things to reduce your income such as increasing to the maximum 401k contribution, might actually lower your overall MAGI and allow you to contribute more to your IRA'due south.

The IRS defines MAGI every bit:

AGI with the addition of the following deductions:

IRA deduction
Student loan interest deduction
Strange earned income exclusion
Strange housing exclusion or deduction
Exclusion of qualified savings bond involvement shown on Form 8815
Exclusion of employer-provided adoption benefits shown on Form 8839

Also, in order to authorize for the retirement savings contribution credit, you must have an adjusted gross income nether these income threshold limits, for 2021:

$33,000 for single filers and married individuals filing separately
$49,500 for heads of household
$66,000 for married couples filing jointly

And for 2022:

$34,000 for single filers and married individuals filing separately
$51,000 for heads of household
$68,000 for married couples filing jointly

There you have it – gross income, adjusted gross income, and modified gross income in a nutshell. I'll exist referencing these terms in some upcoming posts. No quizzes at the moment.

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