What is modified adjusted gross income? IRS and other federal agencies often use MAGI to determine eligibility for certain benefits or breaks or to figure whether you owe surtaxes or surcharges. This question is more important than ever… Thanks in part to the “One Big Beautiful Bill,” which bases qualification for some new tax breaks enacted in the law on a taxpayer’s MAGI amount.
True to the complexity of the federal tax code… There is not just one definition of MAGI. The meaning differs, depending on what it’s used for. The one constant of MAGI is that it always starts with adjusted gross income, which is the amount shown on line 11 of your Form 1040 or Form 1040-SR tax return. From there, it gets complicated, as shown by the following common situations.
Five new OBBB tax deductions. MAGI is used to see if you qualify for the $6,000 senior deduction for individuals age 65 and older, the $40,000 cap on deducting state and local taxes on Schedule A of Form 1040, and the new write-offs for up to $12,500 of overtime pay, $25,000 of tips and $10,000 of car loan interest. MAGI is AGI shown on line 11 of your return plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.
Child credit, adoption credit and the American Opportunity tax credit. These credits use the same definition of MAGI as that discussed immediately above.
Student loan interest, I bond interest used for education and rental losses. These three tax breaks begin to phase out once MAGI reaches a certain level. Here, the meaning of MAGI is more complex than usual, taking more items into account.
The 3.8% surtax on net investment income of upper-income individuals. The NII tax applies to joint filers with MAGI greater than $250,000 and single filers and head-of-household taxpayers with MAGI over $200,000. The 3.8% NII tax is due on the smaller of NII or the excess of MAGI above the income thresholds. For this purpose, MAGI is AGI shown on line 11 plus certain excluded foreign income.
Medicare monthly premiums. Most people on Medicare pay the basic fee for Medicare Part B coverage, which for 2025 is $185.00 per month. Many also sign up for Part D prescription drug coverage. Some seniors pay higher Part B and D premiums if their MAGI exceeds a certain figure. For 2025 coverage, monthly premium surcharges kick in for joint filers with MAGI over $212,000, and singles with MAGI over $106,000. The surcharges increase as MAGI rises. They are calculated using income reported on the most recently filed tax return. The amounts for 2025 are based on MAGI from 2023 returns. The amounts for 2026 will be based on MAGI from 2024 returns filed in 2025. MAGI for this purpose is AGI on line 11 plus tax-exempt interest income.