Adjusted gross income is the amount of gross income minus certain deductions or adjustments. It is used to determine tax liability. In other words, the adjusted gross income is the amount of money that is used to calculate the taxes that are owed.
To calculate adjusted gross income, subtract certain expenses from gross income. These expenses can include items such as Education expenses, student loan interest, any contributions, and alimony payments.
In simple terms, Modified Adjusted Gross Income (MAGI) is a measure used by the Internal Revenue Service (IRS) in the United States to determine eligibility for certain tax benefits and deductions. It starts with your Adjusted Gross Income (AGI), which is your total income minus certain allowable deductions. Then, MAGI includes additional modifications or adjustments to arrive at a figure that is used for specific tax purposes.
AGI is the standard measure of an individual's taxable income, which is usually arrived at by subtracting certain deductions from their total income. MAGI takes AGI one step further, making certain adjustments or additions to account for items excluded in the calculation of AGI. Generally, these adjustments include things like tax-free Social Security benefits, student loan interest deductions, and foreign-earned income exclusion.