People understandably gripe about the complexities of the federal income tax laws. Filling out your tax return is not as easy as just writing a couple of numbers down on a postcard and sending it to the IRS.
Just when you think that you might have a handle on your taxes, Congress changes the laws, sometimes retroactively.
Confusing tax terminology add to the challenge. One example of that is the many meanings of the term “modified adjusted gross income,” sometimes referred to as modified AGI or MAGI.
So, let's break down modified adjusted gross income. Here's what you need to know.
What is modified adjusted gross income?
Modified adjusted gross income (MAGI) is often used by the IRS and other federal agencies to determine your eligibility for certain tax benefits or tax breaks or to determine whether you are subject to surtaxes or surcharges.
For example, in the tax code, MAGI is used to calculate income thresholds for the health premium credit, the child tax credit, the American Opportunity Tax Credit, the adoption credit, the clean vehicle tax credit, and to make Roth IRA contributions.
Your MAGI is used to see if you qualify for any of these five new temporary tax breaks in the recently enacted so-called "One Big Beautiful Bill" law: The $6,000 deduction for people age 65 and older, the $40,000 cap on deducting state and local taxes (SALT) on Schedule A, the deduction for up to $25,000 of tips, the deduction for up to $12,500 of overtime pay, and the deduction for up to $10,000 of car loan interest that you pay on loans to buy a new automobile.
Your MAGI also determines whether you will be hit with the 3.8% surtax on net investment income and whether your Social Security benefits are taxed. For people on Medicare, MAGI dictates whether you owe monthly premium surcharges for Parts B and D coverage.
The confusing part is that the definition of modified adjusted gross income often differs depending on what it is used for. However, the one constant of MAGI is that it always starts with your adjusted gross income. (That is the amount shown on Line 11 of your Form 1040 or Form 1040-NR.)
But from there, figuring out your modified adjusted gross income gets complicated.
MAGI for popular tax credits
There are some common situations involving popular tax credits where you will need to calculate your MAGI. For example, several popular tax credits (i.e., the child tax credit, the adoption credit, the clean vehicle credit (known as the EV tax credit) and the American Opportunity tax credit) use the same definition of modified adjusted gross income.
To calculate your modified adjusted gross income for those credits, start with the AGI shown on line 11 of your Form 1040 or 1040-SR and add the foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.
Child Tax Credit. The federal child tax credit of up to $2,200 per child (starting with 2025 tax returns filed in 2026) begins to phase out once your modified AGI exceeds $400,000 on a joint return, or $200,000 on a single or head-of-household return.
For more information, see How Much is the 2025 Child Tax Credit?
The Adoption Credit. The maximum $17,280 tax credit for adopting a child for 2025 begins to phase out at modified AGI over $259,190.
For more information, see our report on the Adoption Tax Credit for 2025.
Clean Vehicle Credit. You still can get up to a $7,500 tax credit for buying a new electric vehicle this year, provided you meet all the rules and you buy the electric vehicle before Sept. 30, 2025. One of the requirements is that your modified AGI not exceed $300,000 on joint returns, $225,000 on head-of-household returns, or $150,000 on single returns. There’s also a tax credit of up to $4,000 for buyers of used electric cars purchased before Oct. 1, 2025, but that tax break ends at modified AGI over $150,000 on joint returns, $112,500 on head-of-household returns, and $75,000 on single returns.
For more information, see How the EV Tax Credit Works for 2025.
American Opportunity Tax Credit. The American Opportunity tax credit for the first four years of college is worth up to $2,500 per child per year in costs for tuition, fees and books. The credit starts to phase out for joint filers with modified AGI over $160,000 and for single and head-of-household filers with modified AGI over $80,000.
Learn More: The AOTC: How Much Is It Worth?
MAGI for five new tax breaks in the OBBB
The ability of filers to take advantage of five new tax breaks in the so-called "One Big Beautiful Bill" signed into law by President Trump on July 4, 2025, depends in part on MAGI.
The definition of modified AGI is the same for purposes of the SALT deduction, senior deduction, tips deduction, overtime pay deduction, and auto loan interest write-off.
To calculate your modified adjusted gross income for these five new deductions described below, start with the AGI shown on line 11 of your Form 1040 or 1040-SR and add the foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico, or American Samoa.
State and Local Tax (SALT) Deduction. The cap on deducting state and local taxes on Schedule A of your Form 1040 rises to $40,000 (up from $10,000) for 2025 through 2029. It goes back down to $10,000 beginning in 2030. There is also an income limit. For 2025, the SALT deduction begins to phase out, but not below $10,000, for filers with modified AGI over $500,000 ($250,000 for couples filing separately). The cap and income limit increase 1% each year through 2029.
Learn More: SALT Deduction 2025: Three Things to Know
"Senior" Deduction. There is a new senior deduction of up to $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. However, not every senior will qualify. The deduction begins to phase out for taxpayers with modified AGI over $150,000 on joint returns and $75,000 on single and head-of-household returns. This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.
For more information, see: 2025 Tax Deduction Change for Those 65 and Older.
Tips Deduction. Up to $25,000 of qualified tips is now deductible. The write-off begins to phase out at modified AGI over $300,000 on joint returns and $150,000 on other returns. This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.
See No Tax on Tips Bill Approved for more information.
Overtime Pay Deduction. Up to $12,500 ($25,000 for joint filers) of qualified overtime compensation is now deductible. The write-off begins to phase out at modified AGI over $300,000 on joint returns and $150,000 on other returns. This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.
Learn more: What's Happening With Taxes on Overtime Pay?
Auto Loan Interest. Individuals with auto loans can deduct up to $10,000 of interest that they pay on loans to buy a new car, minivan, SUV, pickup truck or motorcycle after 2024. Final assembly of the vehicle must take place in the U.S. And the write-off begins to phase out at modified AGI over $200,000 for joint filers and $100,000 for others. This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.
For more information, see New GOP Car Loan Interest Tax Deduction.
MAGI for other common tax deductions
The definition of modified AGI for purposes of tax breaks for student loan interest, savings bond interest used for education, and rental losses (each of which is described below) is even more complex. That’s because more tax items are taken into account in determining MAGI for those tax breaks.
Student Loan Interest Deduction. If you’ve taken out student loans to pay for college, you may be able to deduct up to $2,500 in interest on your tax return once you start repaying the loans. The write-off is considered an above-the-line deduction because it is claimed as an adjustment to income, and you can take it even if you don’t itemize.
However, the student loan interest deduction starts to phase out if your modified AGI for 2025 exceeds $170,000 for joint filers and $85,000 for other filers.
Learn More: Don't Miss the Up to $2,500 Deduction for Student Loan Interest.
Savings Bond Interest Used for Education. Buyers of EE or I savings bonds have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature or when they’re cashed in, whichever comes first.
One way to avoid paying federal income tax on accrued EE or I bond interest is to cash in the bonds before the maturity date and use the proceeds to help pay for college or other higher education expenses for you, your spouse or your dependent. But there are lots of rules and hurdles to jump over to be able to take advantage of this tax perk.
For example, the exclusion is subject to strict income limits. For 2025, the interest exclusion begins to phase out at modified AGI of more than $149,250 for joint filers and $99,500 for others.
Related: Are I Bonds Taxable? Nine Common Situations
Deduction for Rental Losses. The passive loss rules usually prevent the deduction of rental real estate losses, but there are important exceptions. For example, if you actively participate in the renting of your property, you can deduct up to $25,000 of loss against your other income. This $25,000 allowance begins to phase out as your modified AGI exceeds $100,000.
MAGI and the 3.8% net investment income tax
The additional 3.8% tax on net investment income generally affects upper-income investors – either joint filers with modified AGI over $250,000 or single or head-of-household taxpayers with modified AGI over $200,000. (Net investment income includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.) The 3.8% tax is due on whichever is smaller: net investment income or the excess of modified AGI over the set income thresholds.
For purposes of this 3.8% surtax, modified AGI is the AGI shown on line 11 of your Form 1040 or 1040-SR, plus tax-free foreign earned income.
MAGI for Medicare monthly premiums
Most people on Medicare pay the basic monthly fee for Medicare Part B coverage, which for 2025 is $185.00 per month. And many also sign up for the cost of Part D prescription drug coverage. However, some seniors pay higher Part B and D premiums if their modified AGI exceeds a specific income threshold.
For 2025 coverage, Medicare Parts B and D monthly premium surcharges kick in for joint filers with modified AGI over $212,000 and single individuals with modified AGI of more than $106,000. The surcharges increase as income rises.
Medicare premium surcharges are calculated using the income reported on the most recent filed tax return. The amounts for 2025 are based on modified AGI from 2023 returns filed in 2024.
Modified AGI for this purpose is AGI shown on line 11 of Form 1040 or Form 1040-SR, plus tax-exempt interest.
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