The order of a tax return
Federal income tax is built in layers, and each layer has a name:
- Gross income: wages, interest, dividends, business income, capital gains, retirement distributions, everything taxable from every source.
- Adjusted gross income (AGI): gross income minus the adjustments on Part II of Schedule 1. The IRS lists educator expenses, student loan interest, deductible IRA and HSA contributions, the deductible part of self-employment tax, alimony paid under older agreements, early withdrawal penalties and certain expenses of reservists, performing artists and fee-based officials. AGI is line 11 of Form 1040.
- Taxable income: AGI minus the standard deduction or itemized deductions.
- Tax: the brackets applied to taxable income.
- Credits: subtracted from the tax, such as the child tax credit.
MAGI is not a line on the return. It is a side calculation that starts from AGI and is used to test eligibility for a particular benefit.
MAGI: one name, several lists
The IRS puts it plainly: modified adjusted gross income adds certain amounts to your AGI, and the specific items and how to calculate them depend on what the MAGI is for. You compute it for one benefit, test that benefit, and start again for the next. The IRS page gives the add-backs for the common cases:
| MAGI for | Start with AGI and add back |
|---|---|
| Child tax credit and education credits | Excluded foreign earned income and housing, the foreign housing deduction, certain excluded income from American Samoa or Puerto Rico |
| Roth IRA contribution limit | The IRA deduction, the student loan interest deduction, excludable savings bond interest, employer-provided adoption benefits, the foreign items above; then subtract income from converting a traditional IRA to a Roth and rollovers from a qualified plan to a Roth |
| Traditional IRA deduction | The same items as the Roth IRA, without the two subtractions |
| Premium tax credit (health insurance marketplace) | Foreign earned income, tax-exempt interest, nontaxable Social Security benefits |
| Net investment income tax | Excluded foreign earned income and the deductions that came from it, plus certain trust, CFC and PFIC adjustments |
The pattern behind the lists: each benefit adds back the items that would otherwise let a taxpayer reduce AGI and slip under the limit. The Roth IRA limit adds back the IRA deduction so that deducting a contribution cannot create Roth eligibility; the premium tax credit adds tax-exempt interest and nontaxable Social Security so that income that never reached AGI still counts toward the subsidy test.
A worked example
A single filer in 2026 has $78,000 of wages and $400 of bank interest, pays $1,500 of student loan interest and puts $4,000 into a deductible traditional IRA.
| Line | Amount | How |
|---|---|---|
| Gross income | $78,400 | $78,000 wages + $400 interest |
| Adjustments (Schedule 1, Part II) | −$5,500 | $4,000 IRA deduction + $1,500 student loan interest |
| AGI (Form 1040, line 11) | $72,900 | |
| MAGI for the Roth or traditional IRA test | $78,400 | AGI with the IRA deduction and student loan interest added back |
| MAGI for the premium tax credit | $72,900 | No tax-exempt interest or Social Security, so equal to AGI |
| Taxable income | $56,800 | AGI − $16,100 standard deduction |
The same person has an AGI of $72,900, an IRA-test MAGI of $78,400 and a premium-tax-credit MAGI of $72,900, all correct at once. When a form or a website asks for "your MAGI", the next question is always "for which benefit".
Where each one shows up
- AGI is the number the IRS points you to for last year's return when you e-file, and the base that several deduction limits are measured against.
- MAGI gates the Roth IRA contribution limit, the traditional IRA deduction when a workplace plan covers you, the premium tax credit, the child tax credit phase-out, the education credits, the student loan interest deduction and the net investment income tax, each with its own version.
- Taxable income is what the brackets and the capital gains rates are applied to; the paycheck calculator estimates it from wages and the standard deduction, and the capital gains tax calculator uses it to place a gain in the 0, 15 or 20 percent rate.
Lowering AGI is the most useful of the three to understand, because it is the one you can act on during the year: a traditional 401(k) deferral never enters wages at all, and a deductible IRA or HSA contribution comes off as an adjustment. The 401(k) calculator shows what a deferral does to the paycheck, and the percentage calculator turns any of these figures into a share of gross income.
Frequently asked questions
What is adjusted gross income?
The IRS defines AGI as your total (gross) income from all sources minus certain adjustments, calculated before the standard or itemized deduction. The adjustments are listed on Part II of Schedule 1 of Form 1040: educator expenses, student loan interest, deductible IRA contributions, HSA contributions, the deductible half of self-employment tax, alimony under older agreements and a few more. AGI is on line 11 of Form 1040.
What is MAGI?
Modified adjusted gross income is AGI with certain amounts added back, and the IRS says the specific items depend on what the MAGI is for. The Roth IRA version adds back the IRA deduction, student loan interest and a few exclusions; the premium tax credit version adds tax-exempt interest and nontaxable Social Security; the net investment income tax version adds excluded foreign earned income. There is no single MAGI.
Is MAGI always higher than AGI?
It is never lower, and for most people it is the same number. The add-backs are items many taxpayers do not have: foreign earned income, tax-exempt interest, nontaxable Social Security, a deductible IRA contribution or student loan interest. If none applies to you, your MAGI for every purpose equals your AGI.
Where does taxable income come in?
After AGI. Taxable income is AGI minus the standard deduction ($16,100 for a single filer in 2026) or your itemized deductions, and it is the figure the tax brackets are applied to. So the order is gross income, then AGI, then taxable income, then tax, then credits.
Why do so many limits use MAGI instead of AGI?
Because the adjustments that reduce AGI could otherwise be used to slip under an income limit. Deducting an IRA contribution lowers AGI; the Roth IRA income limit adds it back so the deduction cannot create Roth eligibility. Each benefit adds back the items Congress did not want to count toward it, which is why the lists differ.
Sources
- IRS: Definition of adjusted gross income (gross income minus adjustments, listed on Schedule 1 Part II; AGI on Form 1040 line 11)
- IRS: Modified adjusted gross income (MAGI adds certain amounts to AGI; the items depend on the benefit; add-back lists for the child tax credit, education credits, Roth and traditional IRAs, the premium tax credit and the net investment income tax)
- IRS Revenue Procedure 2025-32: 2026 standard deduction and tax rate tables (PDF)
General information based on the sources above, not tax, legal or financial advice.