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Connect on LinkedInMost Americans know basic tax concepts and terminology, like income, credits, deductions, and exclusions. Phrases like modified adjusted gross income (MAGI), on the other hand, aren’t always as well known.
If you’re not familiar with MAGI, it can benefit you to read up on the concept. After all, understanding your MAGI can help you reduce your overall taxable income, qualify for certain tax benefits, and determine eligibility for government health plans.
Want to know exactly what MAGI is, how to calculate it, and why understanding it can help you optimize your tax strategy? Read on for the answers to all of these questions and more.
Understanding MAGI: The basic concepts
Before diving into what MAGI is, it can be helpful to discuss some other key terms:
- Gross income refers to your total worldwide income from all sources — wages, bonuses, interest, dividends, rental income, and more — before taxes and other deductions.
Adjusted gross income (AGI), on the other hand, is your total income minus certain deductions.
Adjusted gross income (AGI)
To calculate your AGI, you’ll take your gross income and make certain adjustments to it. On a practical level, this means subtracting certain above-the-line deductions. A couple of notable adjustments for expats in particular include the:
- Foreign Earned Income Exclusion (FEIE): Allows Americans who pass either the Physical Presence Test or Bona Fide Residence Test to exclude a portion of their foreign-earned income from taxation. The FEIE limit is $126,500 for tax year 2024 (the taxes you pay in 2025) and $130,000 for 2025
- Foreign Housing Exclusion (FHE): Allows those who qualify for the FEIE to exclude a portion of their income based on qualifying foreign housing expenses from taxation
By excluding income under the FEIE or FHE from your gross income, expats can dramatically lower their AGI. And that’s good news, because the lower your AGI, the more likely you are to qualify for certain tax credits (more on that in a bit).
The Internal Revenue Service (IRS) also uses AGI to determine whether you’re subject to the Alternative Minimum Tax (AMT) and how much you owe in monthly student loan repayments under certain income-based plans.
And critically, AGI is a key figure in calculating your overall taxable income for federal (and often, state) tax purposes. To arrive at your taxable income, you’ll subtract the standard deduction or itemized deductions from your AGI.
After calculating your tax liability on that amount, you can then apply any relevant tax credits to reduce your overall tax burden.
What is Modified Adjusted Gross Income (MAGI)?
MAGI may sound similar to AGI, but there are important distinctions between the two. Chiefly, MAGI requires you to “add back” certain items of income excluded and expenses deducted from your AGI.
For many taxpayers based in the US, AGI and MAGI don’t vary much (if at all). But for expats who have taken advantage of the FEIE or FHE, the difference can be dramatic. This can impact your taxes in many ways.
How MAGI affects the Foreign Earned Income Exclusion (FEIE)
MAGI does not directly affect your ability to claim the FEIE — as long as you meet either the Physical Presence Test or Bona Fide Residence Test, you qualify for the FEIE. However, when calculating one of the items you must add back to your AGI when calculating MAGI is FEIE/FHE income you previously excluded.
Excluding a significant amount of income under the FEIE will increase your MAGI, which can be beneficial in some cases, but not others, as we’ll explore below.
MAGI & the Net Investment Income Tax (NIIT)
Having a high MAGI can potentially trigger the Net Investment Income Tax, or NIIT. The NIIT applies when you have net-positive investment income AND your MAGI exceeds the following thresholds:
- Single/head of household: $200,000
- Married filing jointly/qualifying surviving spouse: $250,000
- Married filing separately: $125,000
B!T note: Investment income includes rental profits, royalties, interest, dividends, certain annuities, and capital gains realized from the sale of assets (e.g. real estate, stocks, bonds, mutual funds).
If you meet both of these criteria, you will be subject to a 3.8% tax on either your net investment income or your MAGI (whichever’s smaller).
MAGI & Roth IRA eligibility
A high MAGI can also affect whether you can contribute to a Roth IRA — and if so, how much. The chart below shows how much you can contribute (if anything) to a Roth IRA in tax year 2024, the taxes you file in 2025.
Roth IRA contribution limits according to MAGI, 2024
| Single Filers | Married Filing Jointly | Married Filing Separately | Maximum contribution (under age 50) | Maximum contribution (age 50+) |
| Up to $146,000 | Up to $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 |
Source: Charles Schwab
Now, let’s look at how much you can potentially contribute to a Roth IRA based on your MAGI in tax year 2025, the taxes you file in 2026.
Roth IRA contribution limits according to MAGI, 2025
| Single Filers | Married Filing Jointly | Married Filing Separately | Maximum contribution (under age 50) | Maximum contribution (age 50+) |
| Up to $150,00 | Up to $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 |
Source: Charles Schwab
Note that income excluded under the FEIE is not eligible for Roth IRA contributions, so expats who earn below the FEIE limit and exclude it all through the FEIE cannot contribute to Roth IRAs.
How MAGI impacts other US tax benefits
MAGI also affects eligibility for a wide variety of tax credits, including the:
Child Tax Credit (CTC): Provides those eligible with up to $2,000 in partially refundable credits per qualifying child
- MAGI limit: While AGI is the primary factor that determines CTC eligibility, MAGI can affect phase-out limits. For most filers, CTC benefits start to reduce at a MAGI of $200,000 ($400,000 if married filing jointly) and fully phase out at $240,000 ($440,000 if married filing jointly)
American Opportunity Tax Credit (AOTC): Provides those eligible with up to $2,500 in partially refundable tax credits for qualifying education expenses
- MAGI limit: Benefits begin to phase out after $80,000 ($160,000 if married filing jointly) and fully phase out at $90,000 ($180,000 if married filing jointly)
Lifetime Learning Credit (LLC): Provides those eligible with a $2,000 nonrefundable tax credit for qualifying education expenses
- MAGI limit: Same as AOTC limits mentioned above
Adoption Credit: Provides those eligible with up to $16,810 in nonrefundable tax credits for qualifying expenses incurred after adopting a child
- MAGI limit: Benefits begin to phase out after $252,151 and fully phase out at $292,150
MAGI also affects your ability to claim certain deductions, including:
Traditional IRA contribution deductions: Allows those who qualify to deduct the partial or full amount contributed to traditional IRAs
- Single/Head of Household MAGI limit: Benefits begin to phase out after $77,000 and fully phase out at $87,00
- Married filing jointly/qualifying surviving spouse MAGI limit: Benefits begin to phase out after $123,000 and fully phase out at $143,000
- Married filing separately MAGI limits: Partial benefits up to $10,000; anything above phases out
Student loan interest deductions: Allows those who qualify to deduct up to $2,500 of interest from student loans
- MAGI limit: Benefits begin to phase out after $80,000 ($160,000 if married filing jointly) and fully phase out at $95,000 ($195,000 if married filing jointly)
Passive activity losses: Allows those who qualify to deduct up to $25,000 ($12,500 if married filing separately) in losses from real estate rentals
MAGI limit: Fully phases out at $100,000 ($50,000 if married filing separately)
How to Calculate MAGI: Step-by-step guide
To calculate your Modified Adjusted Gross Income, you’ll need to:
1. Calculate your gross income
Add up all of your different sources of income for the year, including:
Earned income
- Wages & salaries
- Commissions
- Business profits
- Self-employment income
Unearned income
- Interest from savings accounts, bonds, Certificates of Deposit (CDs), etc.
- Dividends from stocks & mutual funds
- Capital gains from the sale of assets like stocks, real estate, cryptocurrency, etc.
- Rental income
- Retirement account distributions
- Taxable Social Security benefits
B!T note: Gifts and inheritances, life insurance proceeds, and certain employee benefits (e.g. health insurance) are usually not included in gross income calculations
2. Make adjustments to arrive at your Adjusted Gross Income (AGI)
Subtract relevant adjustments such as:
- Income excluded under the FEIE or FHE
- HSA contributions
- 50% of self-employment tax
- Self-employed health insurance deduction
- Alimony payments
- Student loan interest (up to $2,500 for single filers earning $90,000 per year or less)
- Educator expenses (up to $300)
- Early withdrawal penalties on retirement accounts
- Contributions toward certain retirement accounts
B!T note: Contributions toward foreign retirement plans may not be eligible for deduction
3. Factor in add-backs to arrive at your Modified Adjusted Gross Income (MAGI)
To your AGI, add:
Certain items of income
- Income excluded under the FEIE or FHE
- Tax-exempt interest income
Certain deductions & expenses
- Tuition & fees deduction
- Non-taxable Social Security payments
- Student loan interest
- 50% of self-employment tax
- Passive income or loss
- Traditional IRA contributions
- Rental losses
B!T note: Not all add-backs apply universally. Specific add-backs are required based on the purpose, such as determining eligibility for deductions like the Retirement Savings Contributions Credit or the Premium Tax Credit.
Some websites offer AGI calculators and Modified Adjusted Gross Income calculators to simplify the process. That said, the surest way to arrive at an accurate answer is to work with a certified tax professional.
Note:
Not all add-backs apply universally. Specific add-backs are required based on the purpose, such as determining eligibility for deductions like the Retirement Savings Contributions Credit or the Premium Tax Credit.
How to report Modified Adjusted Gross Income: Forms and documentation
There is no designated place on your tax form to report MAGI. However, having a MAGI over a certain threshold may require you to file Form 8960 and pay the Net Investment Income Tax (NIIT):
| Filing Status | Threshold |
| Single or head of household | $200,000 |
| Married filing jointly or qualifying surviving spouse | $250,000 |
| Married filing separately | $125,000 |
On the other hand, if your Modified Adjusted Gross Income qualifies you for a tax break, you may need to file an additional form/schedule to claim them:
- Child Tax Credit (CTC): Schedule 8812
- Retirement contributions, student loan interest deduction: Schedule 1 (Form 1040)
- Passive activity losses: Form 8582
- American Opportunity Tax Credit (AOTC) & Lifetime Learning Credit (LLC): Form 8863
- Tuition & fees deduction: Form 8917
- Qualified adoption expenses: Form 8839
Strategies to optimize Modified Adjusted Gross Income for US expats
In some cases, US expats may be able to optimize their MAGI to fall below the NIIT or qualify for tax breaks. Among these strategies include:
Timing your income
If you’re approaching the thresholds for the NIIT or certain tax breaks, consider deferring certain items of income. You might, for example, wait until the start of the next year to sell off a vacation home, bill clients, or withdraw from a brokerage or retirement account
Maximizing above-the-line deductions
Making the right deductions — and maximizing the benefit when you do — can sometimes decrease your AGI and subsequently, your MAGI. These may include:
- Certain retirement contributions
- 50% of self-employment taxes
- Self-employed health insurance
- HSA contributions
- Educator expenses
- Tuition & fees
- Early withdrawal penalty
- Moving expenses for active military
B!T note: Claiming certain tax credits could require you to add these items back to your MAGI.
Managing investment income
Tax-loss harvesting may help offset investment gains that would otherwise be included in your MAGI. You might also choose to increase or re-allocate some of your investments into tax-exempt investments like municipal bonds to earn investment income without adding to your MAGI
Selectively applying the FEIE/FHE
In certain situations, it may be beneficial to apply the FEIE or FHE to some items of income but not others. While this could potentially increase your overall taxable income, it could also help prevent you from crossing Modified Adjusted Gross Income thresholds
Considering a Roth IRA conversion
Roth IRA distributions are not included in your MAGI since you’ve already paid taxes on them. As such, you may choose to convert traditional IRA funds to a Roth IRA in a low-income year. That way, you can make tax-free withdrawals in retirement
Before employing any of these strategies, however, it’s critical to consult a licensed tax professional. Only a professional tax advisor will be able to advise which strategies are right for you based on your unique situation.
FAQs
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How does MAGI impact eligibility for tax credits, like the Child Tax Credit?
Your MAGI plays a significant role in determining your eligibility for several US tax credits, including the Child Tax Credit (CTC). The CTC provides up to $2,000 in partially refundable credits for each qualifying child, with MAGI limits as follows:
MAGI limits for most taxpayers
- Under $200,000: Full benefits
- Above $200,000 but less than $240,000: Benefits reduce by $50 for every $1,000 over the $200,000 limit
- $240,000+: No benefits
Married filing jointly:
- Under $400,000: Full benefits
- Above $400,000 but less than $440,000: Benefits reduce by $50 for every $1,000 over the $200,000 limit
- $440,000+: No benefits
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How do I reduce my MAGI to qualify for tax benefits as an expat?
You may be able to reduce your MAGI by:
- Deferring certain items of income (e.g. waiting to sell a vacation home) until the next tax year
- Maximizing above-the-line deductions such as 50% of self-employment taxes, HSA contributions, early withdrawal penalties, and certain retirement contributions
- Harvesting tax losses to offset investment gains
- Re-allocate investments to tax-exempt investments like municipal bonds
- Apply the FEIE selectively (i.e. to a portion of your foreign-earned income vs. all of your foreign-earned income)
- Consider a Roth IRA conversion
Before deciding on any of these strategies, though, it’s essential to speak with a tax specialist.
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What are some common mistakes US expats make with MAGI?
Common mistakes US expats make when it comes to MAGI include:
- Assuming foreign income doesn’t count toward MAGI
- Forgetting to add back certain items of income and exclusions, such as the FEIE
- Not taking advantage of tax credits their MAGI qualifies them for
- Miscalculating MAGI
To avoid these mistakes, it’s best to work with a licensed tax professional.
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How do retirement contributions affect my MAGI?
Contributions to certain retirement plans — such as traditional IRAs and 401(k)s — may be able to reduce your MAGI if you qualify for deduction. Expats should keep in mind, though, that they typically can’t deduct contributions to foreign 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?
Yes, if you realize that you’ve made a mistake in your MAGI calculation, you can amend your tax return by filing Form 1040-X. However, it’s better to get MAGI calculations right the first time, as filing an amended return is a time-consuming process. If your incorrect MAGI calculation led you to pay less in taxes than you should have, you may even face late penalties.
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Does MAGI affect my Social Security benefits?
MAGI does not directly affect your Social Security benefits, but the higher your MAGI, the higher your Social Security payments tend to be. After all, Social Security payments are based on your 35 highest-income years.
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Does the standard deduction reduce MAGI?
No, unfortunately, the standard deduction does not reduce MAGI.
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Is Modified Adjusted Gross Income after taxes?
No, you’ll calculate Modified Adjusted Gross Income before taxes are applied. However, your MAGI does determine your eligibility to claim certain tax credits, like the Child Tax Credit, continuing education tax credits, and the Adoption Credit.
