Most People know fundamental tax ideas and terminology, like earnings, credit, deductions, and exclusions. Phrases like modified adjusted gross earnings (MAGI), then again, aren’t at all times as well-known.
In case you’re not conversant in MAGI, it will probably profit you to learn up on the idea. In any case, understanding your MAGI may also help you cut back your total taxable earnings, qualify for sure tax advantages, and decide eligibility for presidency well being plans.
Need to know precisely what MAGI is, how you can calculate it, and why understanding it will probably enable you optimize your tax technique? Learn on for the solutions to all of those questions and extra.
Understanding MAGI: The fundamental ideas
Earlier than diving into what MAGI is, it may be useful to debate another key phrases:
- Gross earnings refers to your complete worldwide earnings from all sources — wages, bonuses, curiosity, dividends, rental earnings, and extra — earlier than taxes and different deductions.
Adjusted gross earnings (AGI), then again, is your complete earnings minus sure deductions.
Adjusted gross earnings (AGI)
To calculate your AGI, you’ll take your gross earnings and make sure changes to it. On a sensible stage, this implies subtracting sure above-the-line deductions. A few notable changes for expats specifically embrace the:
By excluding earnings beneath the FEIE or FHE out of your gross earnings, expats can dramatically decrease their AGI. And that’s excellent news, as a result of the decrease your AGI, the extra doubtless you might be to qualify for sure tax credit (extra on that in a bit).
The Inner Income Service (IRS) additionally makes use of AGI to find out whether or not you’re topic to the Different Minimal Tax (AMT) and the way a lot you owe in month-to-month pupil mortgage repayments beneath sure income-based plans.
And critically, AGI is a key determine in calculating your total taxable earnings for federal (and sometimes, state) tax functions. To reach at your taxable earnings, you’ll subtract the usual deduction or itemized deductions out of your AGI.
After calculating your tax legal responsibility on that quantity, you’ll be able to then apply any related tax credit to scale back your total tax burden.
What’s Modified Adjusted Gross Revenue (MAGI)?
MAGI might sound much like AGI, however there are essential distinctions between the 2. Mainly, MAGI requires you to “add again” sure objects of earnings excluded and bills deducted out of your AGI.
For a lot of taxpayers primarily based within the US, AGI and MAGI don’t differ a lot (if in any respect). However for expats who’ve taken benefit of the FEIE or FHE, the distinction may be dramatic. This could affect your taxes in some ways.
How MAGI impacts the International Earned Revenue Exclusion (FEIE)
MAGI doesn’t straight have an effect on your means to assert the FEIE — so long as you meet both the Bodily Presence Check or Bona Fide Residence Check, you qualify for the FEIE. Nonetheless, when calculating one of many objects you will need to add again to your AGI when calculating MAGI is FEIE/FHE earnings you beforehand excluded.
Excluding a major quantity of earnings beneath the FEIE will improve your MAGI, which may be helpful in some instances, however not others, as we’ll discover beneath.
MAGI & the Web Funding Revenue Tax (NIIT)
Having a excessive MAGI can doubtlessly set off the Web Funding Revenue Tax, or NIIT. The NIIT applies when you could have net-positive funding earnings AND your MAGI exceeds the next thresholds:
- Single/head of family: $200,000
- Married submitting collectively/qualifying surviving partner: $250,000
- Married submitting individually: $125,000
B!T observe: Funding earnings consists of rental income, royalties, curiosity, dividends, sure annuities, and capital positive aspects realized from the sale of belongings (e.g. actual property, shares, bonds, mutual funds).
In case you meet each of those standards, you may be topic to a 3.8% tax on both your web funding earnings or your MAGI (whichever’s smaller).
MAGI & Roth IRA eligibility
A excessive MAGI can even have an effect on whether or not you’ll be able to contribute to a Roth IRA — and if that’s the case, how a lot. The chart beneath exhibits how a lot you’ll be able to contribute (if something) to a Roth IRA in tax yr 2024, the taxes you file in 2025.
Roth IRA contribution limits in line with MAGI, 2024
| Single Filers | Married Submitting Collectively | Married Submitting Individually | Most contribution (beneath age 50) | Most contribution (age 50+) |
| As much as $146,000 | As much as $230,000 | $0 | $7,000 | $8,000 |
| $147,500 | $231,000 | $0 | $6,300 | $7,200 |
| $149,000 | $232,000 | $0 | $5,600 | $6,400 |
| $150,500 | $233,000 | $0 | $4,900 | $5,600 |
| $152,500 | $234,000 | $0 | $4,200 | $4,800 |
| $153,500 | $235,000 | $0 | $3,500 | $4,000 |
| $155,000 | $236,000 | $0 | $2,800 | $3,200 |
| $156,500 | $237,000 | $0 | $2,100 | $2,400 |
| $158,000 | $238,000 | $0 | $1,400 | $1,600 |
| $159,500 | $239,000 | $0 | $700 | $800 |
| $161,000+ | $240,000+ | $10,000+ | $0 | $0 |
Supply: Charles Schwab
Now, let’s have a look at how a lot you’ll be able to doubtlessly contribute to a Roth IRA primarily based in your MAGI in tax yr 2025, the taxes you file in 2026.
Roth IRA contribution limits in line with MAGI, 2025
| Single Filers | Married Submitting Collectively | Married Submitting Individually | Most contribution (beneath age 50) | Most contribution (age 50+) |
| As much as $150,00 | As much as $236,000 | $0 | $7,000 | $8,000 |
| $151,500 | $237,000 | $1,000 | $6,300 | $7,200 |
| $153,000 | $238,000 | $2,000 | $5,600 | $6,400 |
| $154,500 | $239,000 | $3,000 | $4,900 | $5,600 |
| $156,000 | $240,000 | $4,000 | $4,200 | $4,800 |
| $157,500 | $241,000 | $5,000 | $3,500 | $4,000 |
| $159,000 | $242,000 | $6,000 | $2,800 | $3,200 |
| $160,500 | $243,000 | $7,000 | $2,100 | $2,400 |
| $162,000 | $244,000 | $8,000 | $1,400 | $1,600 |
| $163,500 | $245,000 | $9,000 | $700 | $800 |
| $165,000+ | $246,000+ | $10,000+ | $0 | $0 |
Supply: Charles Schwab
Be aware that earnings excluded beneath the FEIE is not eligible for Roth IRA contributions, so expats who earn beneath the FEIE restrict and exclude all of it by means of the FEIE can’t contribute to Roth IRAs.
How MAGI impacts different US tax advantages
MAGI additionally impacts eligibility for all kinds of tax credit, together with the:
Youngster Tax Credit score (CTC): Gives these eligible with as much as $2,000 in partially refundable credit per qualifying baby
- MAGI restrict: Whereas AGI is the first issue that determines CTC eligibility, MAGI can have an effect on phase-out limits. For many filers, CTC advantages begin to cut back at a MAGI of $200,000 ($400,000 if married submitting collectively) and totally part out at $240,000 ($440,000 if married submitting collectively)
American Alternative Tax Credit score (AOTC): Gives these eligible with as much as $2,500 in partially refundable tax credit for qualifying schooling bills
- MAGI restrict: Advantages start to part out after $80,000 ($160,000 if married submitting collectively) and totally part out at $90,000 ($180,000 if married submitting collectively)
Lifetime Studying Credit score (LLC): Gives these eligible with a $2,000 nonrefundable tax credit score for qualifying schooling bills
- MAGI restrict: Similar as AOTC limits talked about above
Adoption Credit score: Gives these eligible with as much as $16,810 in nonrefundable tax credit for qualifying bills incurred after adopting a toddler
- MAGI restrict: Advantages start to part out after $252,151 and totally part out at $292,150
MAGI additionally impacts your means to assert sure deductions, together with:
Conventional IRA contribution deductions: Permits those that qualify to deduct the partial or full quantity contributed to conventional IRAs
- Single/Head of Family MAGI restrict: Advantages start to part out after $77,000 and totally part out at $87,00
- Married submitting collectively/qualifying surviving partner MAGI restrict: Advantages start to part out after $123,000 and totally part out at $143,000
- Married submitting individually MAGI limits: Partial advantages as much as $10,000; something above phases out
Scholar mortgage curiosity deductions: Permits those that qualify to deduct as much as $2,500 of curiosity from pupil loans
- MAGI restrict: Advantages start to part out after $80,000 ($160,000 if married submitting collectively) and totally part out at $95,000 ($195,000 if married submitting collectively)
Passive exercise losses: Permits those that qualify to deduct as much as $25,000 ($12,500 if married submitting individually) in losses from actual property leases
MAGI restrict: Totally phases out at $100,000 ($50,000 if married submitting individually)
The best way to Calculate MAGI: Step-by-step information
To calculate your Modified Adjusted Gross Revenue, you’ll must:
1. Calculate your gross earnings
Add up all your completely different sources of earnings for the yr, together with:
Earned earnings
- Wages & salaries
- Commissions
- Enterprise income
- Self-employment earnings
Unearned earnings
- Curiosity from financial savings accounts, bonds, Certificates of Deposit (CDs), and many others.
- Dividends from shares & mutual funds
- Capital positive aspects from the sale of belongings like shares, actual property, cryptocurrency, and many others.
- Rental earnings
- Retirement account distributions
- Taxable Social Safety advantages
B!T observe: Presents and inheritances, life insurance coverage proceeds, and sure worker advantages (e.g. medical health insurance) are normally not included in gross earnings calculations
2. Make changes to reach at your Adjusted Gross Revenue (AGI)
Subtract related changes reminiscent of:
- Revenue excluded beneath the FEIE or FHE
- HSA contributions
- 50% of self-employment tax
- Self-employed medical health insurance deduction
- Alimony funds
- Scholar mortgage curiosity (as much as $2,500 for single filers incomes $90,000 per yr or much less)
- Educator bills (as much as $300)
- Early withdrawal penalties on retirement accounts
- Contributions towards sure retirement accounts
B!T observe: Contributions towards international retirement plans will not be eligible for deduction
3. Think about add-backs to reach at your Modified Adjusted Gross Revenue (MAGI)
To your AGI, add:
Sure objects of earnings
- Revenue excluded beneath the FEIE or FHE
- Tax-exempt curiosity earnings
Sure deductions & bills
- Tuition & charges deduction
- Non-taxable Social Safety funds
- Scholar mortgage curiosity
- 50% of self-employment tax
- Passive earnings or loss
- Conventional IRA contributions
- Rental losses
B!T observe: Not all add-backs apply universally. Particular add-backs are required primarily based on the aim, reminiscent of figuring out eligibility for deductions just like the Retirement Financial savings Contributions Credit score or the Premium Tax Credit score.
Some web sites supply AGI calculators and Modified Adjusted Gross Revenue calculators to simplify the method. That stated, the surest strategy to arrive at an correct reply is to work with a licensed tax skilled.
Be aware:
Not all add-backs apply universally. Particular add-backs are required primarily based on the aim, reminiscent of figuring out eligibility for deductions just like the Retirement Financial savings Contributions Credit score or the Premium Tax Credit score.
The best way to report Modified Adjusted Gross Revenue: Types and documentation
There is no such thing as a designated place in your tax type to report MAGI. Nonetheless, having a MAGI over a sure threshold might require you to file Type 8960 and pay the Web Funding Revenue Tax (NIIT):
| Submitting Standing | Threshold |
| Single or head of family | $200,000 |
| Married submitting collectively or qualifying surviving partner | $250,000 |
| Married submitting individually | $125,000 |
Then again, in case your Modified Adjusted Gross Revenue qualifies you for a tax break, chances are you’ll must file a further type/schedule to assert them:
- Youngster Tax Credit score (CTC): Schedule 8812
- Retirement contributions, pupil mortgage curiosity deduction: Schedule 1 (Type 1040)
- Passive exercise losses: Type 8582
- American Alternative Tax Credit score (AOTC) & Lifetime Studying Credit score (LLC): Type 8863
- Tuition & charges deduction: Type 8917
- Certified adoption bills: Type 8839
Methods to optimize Modified Adjusted Gross Revenue for US expats
In some instances, US expats might be able to optimize their MAGI to fall beneath the NIIT or qualify for tax breaks. Amongst these methods embrace:
Timing your earnings
In case you’re approaching the thresholds for the NIIT or sure tax breaks, think about deferring sure objects of earnings. You would possibly, for instance, wait till the beginning of the subsequent yr to dump a trip dwelling, invoice shoppers, or withdraw from a brokerage or retirement account
Maximizing above-the-line deductions
Making the proper deductions — and maximizing the profit once you do — can generally lower your AGI and subsequently, your MAGI. These might embrace:
- Sure retirement contributions
- 50% of self-employment taxes
- Self-employed medical health insurance
- HSA contributions
- Educator bills
- Tuition & charges
- Early withdrawal penalty
- Shifting bills for lively navy
B!T observe: Claiming sure tax credit might require you so as to add this stuff again to your MAGI.
Managing funding earnings
Tax-loss harvesting might assist offset funding positive aspects that may in any other case be included in your MAGI. You may additionally select to extend or re-allocate a few of your investments into tax-exempt investments like municipal bonds to earn funding earnings with out including to your MAGI
Selectively making use of the FEIE/FHE
In sure conditions, it might be helpful to use the FEIE or FHE to some objects of earnings however not others. Whereas this might doubtlessly improve your total taxable earnings, it might additionally assist stop you from crossing Modified Adjusted Gross Revenue thresholds
Contemplating a Roth IRA conversion
Roth IRA distributions will not be included in your MAGI because you’ve already paid taxes on them. As such, chances are you’ll select to transform conventional IRA funds to a Roth IRA in a low-income yr. That method, you may make tax-free withdrawals in retirement
Earlier than using any of those methods, nonetheless, it’s essential to seek the advice of a licensed tax skilled. Solely an expert tax advisor will be capable to advise which methods are best for you primarily based in your distinctive state of affairs.
FAQs
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How does MAGI affect eligibility for tax credit, just like the Youngster Tax Credit score?
Your MAGI performs a major function in figuring out your eligibility for a number of US tax credit, together with the Youngster Tax Credit score (CTC). The CTC offers as much as $2,000 in partially refundable credit for every qualifying baby, with MAGI limits as follows:
MAGI limits for many taxpayers
- Beneath $200,000: Full advantages
- Above $200,000 however lower than $240,000: Advantages cut back by $50 for each $1,000 over the $200,000 restrict
- $240,000+: No advantages
Married submitting collectively:
- Beneath $400,000: Full advantages
- Above $400,000 however lower than $440,000: Advantages cut back by $50 for each $1,000 over the $200,000 restrict
- $440,000+: No advantages
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How do I cut back my MAGI to qualify for tax advantages as an expat?
You might be able to cut back your MAGI by:
- Deferring sure objects of earnings (e.g. ready to promote a trip dwelling) till the subsequent tax yr
- Maximizing above-the-line deductions reminiscent of 50% of self-employment taxes, HSA contributions, early withdrawal penalties, and sure retirement contributions
- Harvesting tax losses to offset funding positive aspects
- Re-allocate investments to tax-exempt investments like municipal bonds
- Apply the FEIE selectively (i.e. to a portion of your foreign-earned earnings vs. all your foreign-earned earnings)
- Think about a Roth IRA conversion
Earlier than deciding on any of those methods, although, it’s important to talk with a tax specialist.
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What are some frequent errors US expats make with MAGI?
Widespread errors US expats make in relation to MAGI embrace:
- Assuming international earnings doesn’t rely towards MAGI
- Forgetting so as to add again sure objects of earnings and exclusions, such because the FEIE
- Not making the most of tax credit their MAGI qualifies them for
- Miscalculating MAGI
To keep away from these errors, it’s greatest to work with a licensed tax skilled.
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How do retirement contributions have an effect on my MAGI?
Contributions to sure retirement plans — reminiscent of conventional IRAs and 401(ok)s — might be able to cut back your MAGI if you happen to qualify for deduction. Expats ought to take into account, although, that they usually can’t deduct contributions to international retirement accounts or pension plans.
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Can I amend my MAGI calculation if I make a mistake on my U.S. expat tax return?
Sure, if you happen to understand that you simply’ve made a mistake in your MAGI calculation, you’ll be able to amend your tax return by submitting Type 1040-X. Nonetheless, it’s higher to get MAGI calculations proper the primary time, as submitting an amended return is a time-consuming course of. In case your incorrect MAGI calculation led you to pay much less in taxes than it’s best to have, chances are you’ll even face late penalties.
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Does MAGI have an effect on my Social Safety advantages?
MAGI doesn’t straight have an effect on your Social Safety advantages, however the increased your MAGI, the upper your Social Safety funds are usually. In any case, Social Safety funds are primarily based in your 35 highest-income years.
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Does the usual deduction cut back MAGI?
No, sadly, the usual deduction doesn’t cut back MAGI.
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Is Modified Adjusted Gross Revenue after taxes?
No, you’ll calculate Modified Adjusted Gross Revenue earlier than taxes are utilized. Nonetheless, your MAGI does decide your eligibility to assert sure tax credit, just like the Youngster Tax Credit score, persevering with schooling tax credit, and the Adoption Credit score.
