If you’ve already filed your taxes this year, you may have come across your adjusted gross income (AGI) on your tax forms. Or you may be wondering what AGI is and how it relates to your finances. AGI is an important factor when it comes to tax returns and how the IRS determines taxable income. Show
In general, AGI can be found by subtracting specific adjustments to income—such as certain student loan interest or alimony payments—from gross income. If you use a tax preparer or tax software, they may be able to help you calculate your AGI—or do it for you. Key Takeaways
Looking for a Credit Card?Which Capital One credit card is right for you? Compare cards online to find out. Explore Cards The Purpose of Adjusted Gross IncomeAGI helps the IRS determine how much income tax people are required to pay each year, as well as their tax rate and how many deductions and credits they can claim during tax season. Typically the more deductions and credits a person has, the lower their taxable income and tax liability will be. And that can mean a lower tax payment or higher tax refund. What Is Modified Adjusted Gross Income?According to the IRS, MAGI is for the majority of taxpayers their AGI before student loan interest is deducted. MAGI helps determine eligibility for things like Medicaid, premium tax credits, savings on marketplace health insurance plans, and the Children’s Health Insurance Program. Adjusted Gross Income FAQsCan I Find My AGI on My W-2?You can’t find your AGI on your W-2 form, but your W-2 is a starting point for calculating it. There’s a box at the top of your W-2 that lists your wages, tips and other compensation. That’s your unadjusted gross income for that job. How Do I Find My AGI From Last Year?To find your AGI from the previous year, you have a few options:
How Do I Find My AGI on My Tax Return?Your AGI can be found on line 11 of IRS Form 1040 and in your additional income and adjustments to income on Schedule 1 Form 1040. Adjusted Gross Income in a NutshellUnderstanding AGI and how it applies to taxes can help you be a step ahead during tax season. Remember that AGI determines taxable income, tax rate, and how many deductions and credits a person can claim. You can learn more about taxable income. And as tax time approaches, be sure you know how to identify and avoid tax scams to keep yourself protected. This document is not tax advice. Each individual's tax circumstances are unique. If you have questions about your specific tax situation, please consult a CPA or tax adviser. We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional. Capital One does not provide, endorse or guarantee any third-party product, service, information, or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners. The Affordable Care Act (ACA) offers premium tax credits to help eligible individuals and families purchase affordable individual health insurance coverage through the Health Insurance Marketplace. Due to the American Rescue Plan, no American will ever pay more than 8.5% of their household income for a benchmark silver plan. Your “household income” isn’t just what your household makes in a year—it’s based on your “modified adjusted gross income” (MAGI). Knowing your MAGI is important for many things, such as determining if you’re eligible for tax subsidies or Medicaid. So how do you figure out what your MAGI is? In this article, we’ll go over what MAGI means and how you can calculate yours. Learn how a health reimbursement arrangement can affect your MAGI in our guide What is modified adjusted gross income?In short, your MAGI is your adjusted gross income (AGI) with any tax-exempt interest income and certain deductions added back in. The IRS uses your MAGI in many ways to determine if you’re eligible for certain deductions and credits, like student loan interest deductions and the Child Tax Credit. Your MAGI determines whether or not you:
If your MAGI is above the income levels set by the IRS for these credits or deductions, you won’t be able to qualify for them. How do I calculate my modified adjusted gross income?Calculating your MAGI is important in determining if you qualify for a premium tax credit and other tax deductions. Here's a quick overview of how to calculate your modified adjusted gross income:
Let’s go over each step in more detail. Step 1: Calculate your gross incomeYour gross income (GI) is the simplest form of income. It includes all the money you earned without any tax deductions figured into the total amount. Your GI can come from a lot of places, including taxable income you earned through:
Rather than doing the math yourself, you can find your GI on line 7b of IRS form 1040. Your GI will be the basis for your adjusted gross income (AGI) calculation, which we’ll cover in the next section. Step 2: Calculate your adjusted gross incomeOnce you have gross income, you "adjust" it to calculate your adjusted gross income (AGI) by subtracting qualified deductions from your gross income. Your AGI is the total taxable income before any stand, or itemized deductions or exemptions are made, and determines your eligibility for certain tax credits like:
Adjustments can include items like:
Many deductions become ineligible if you have an AGI above a certain threshold, total itemized deductions, mortgage insurance premiums, and charitable contributions. Your MAGI is not included on your federal income tax return, but you can also find your AGI on line 11 of IRS form 1040. If you still need extra help with the adjustments, you can work with a tax professional to ensure you’ve done the calculations correctly. Step 3. Calculate your modified adjusted gross incomeNow that you’ve figured out your AGI, you’re ready to calculate your modified adjusted gross income. The IRS phases out credits and allowable deductions as your income increases. So by adding these factors back to your AGI, the IRS determines how much you really earned, giving you your MAGI. You should add the following to your AGI to determine your MAGI:
If this looks confusing, don’t worry! The good news is that most people don’t have any of the income described above, so your MAGI will likely be the same as your AGI. ConclusionYour MAGI plays an important role when filing taxes because it determines what you owe the IRS and what tax benefits you’re eligible to receive. Even better, once you know your MAGI, you can shop the Marketplace or your state exchange for your own health insurance plan and begin getting coverage for medical services. These sites will simply ask for your MAGI and household size, then calculate any tax credits you may qualify for. By following the steps in this article, you’ll have everything you need to know about your income and how it influences your health insurance premiums. This article was originally published on September 20, 2021. It was last updated on November 28, 2022. |