Every week, in our Ask the Editor collection, Pleasure Taylor, The Kiplinger Tax Letter Editor, solutions questions on subjects submitted by readers. This week, she’s 4 questions on the which means of modified adjusted gross earnings, or MAGI. (Get a free problem of The Kiplinger Tax Letter or subscribe.)
1. MAGI — basic guidelines
Query: I preserve seeing references to modified adjusted gross earnings in tales about federal earnings tax breaks. What’s modified adjusted gross earnings?
Pleasure Taylor: The IRS and different federal businesses usually use a taxpayer’s modified adjusted gross earnings (MAGI) to find out eligibility for sure advantages or tax breaks, or to determine whether or not a taxpayer owes surtaxes or surcharges. True to the complexity of the federal tax code, there isn’t just one definition of MAGI. The which means differs, relying on what it’s used for.
Nevertheless, the one fixed of MAGI is that it all the time begins with adjusted gross earnings, which is the quantity proven on line 11 of your Type 1040 or Type 1040-SR.
To be taught extra, see The Many Definitions of Modified Adjusted Gross Earnings (MAGI)
2. MAGI and 5 OBBB deductions
Query: What’s the definition of MAGI for the brand new $6,000 senior deduction?
From simply $107.88 $24.99 for Kiplinger Private Finance
Be a wiser, higher knowledgeable investor.
CLICK FOR FREE ISSUE
Join Kiplinger’s Free Newsletters
Revenue and prosper with the very best of knowledgeable recommendation on investing, taxes, retirement, private finance and extra – straight to your e-mail.
Revenue and prosper with the very best of knowledgeable recommendation – straight to your e-mail.
Pleasure Taylor: The “One Large Stunning Invoice” (OBBB) supplies 5 new or enhanced momentary tax breaks for particular person taxpayers that first take impact on 2025 tax returns filed subsequent yr. All of those deductions start to section out for taxpayers with MAGI over a specific amount, as proven beneath.
- The $6,000 deduction for filers age 65 or older ($12,000 on joint returns if every partner is 65 or older) begins to section out for taxpayers with MAGI over $150,000 on joint returns and $75,000 on single and head-of-household returns.
- The up-to-$12,500 ($25,000 on joint returns) deduction for certified time beyond regulation compensation begins to section out for taxpayers with MAGI over $300,000 on joint returns and $150,000 on different returns.
- The up-to-$25,000 deduction for certified ideas begins to section out for taxpayers with MAGI over $300,000 on joint returns and $150,000 on different returns.
- The up-to-$10,000 deduction for curiosity paid on a mortgage to purchase a brand new automobile begins to section out for taxpayers with MAGI over $200,000 on joint returns and $100,000 on different returns.
- The $40,000 cap on deducting state and native taxes (SALT) on Schedule A of the 1040 begins to section out (however not beneath $10,000) for taxpayers with MAGI over $500,000 on joint, head-of-household and single returns, and $250,000 for married {couples} who file separate returns.
For functions of all 5 of those new OBBB deductions, MAGI is your adjusted gross earnings proven on line 11 of your tax return, plus any overseas earned earnings exclusion, overseas housing exclusion, and sure excluded earnings acquired from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.
At this time’s greatest tax software program offers
3. MAGI and Medicare premiums
Query: I’m planning to enroll in Medicare within the subsequent couple of years, and I need to keep away from paying larger month-to-month Medicare premiums. What’s the definition of MAGI for Medicare functions?
Pleasure Taylor: Most individuals on Medicare pay the essential payment for Medicare Half B protection, which for 2025 is $185.00 per 30 days. Many additionally join Half D prescription drug protection. Some Medicare enrollees pay larger Half B and D month-to-month premiums if their MAGI exceeds a sure determine. For 2025 Medicare protection, month-to-month premium surcharges (also called IRMAA surcharges) kick in for joint filers with MAGI over $212,000, and for single filers with MAGI over $106,000. Up to date quantities haven’t but come out for 2026. The surcharges enhance as MAGI rises.
The Medicare premium surcharges are calculated utilizing MAGI reported on probably the most just lately filed federal earnings tax return. For most individuals, 2025 Medicare premium surcharges are based mostly on MAGI from 2023 returns, the quantities for 2026 might be based mostly on MAGI from 2024 returns, and the quantities for 2027 might be based mostly on MAGI from 2025 tax returns that you’ll file subsequent yr.
MAGI for this objective is AGI proven on line 11 of your Type 1040 or 1040-SR plus any tax-exempt curiosity earnings.
4. Certified charitable distributions
Query: I’m 74 and am enrolled in Medicare. If I make a $25,000 certified charitable distribution instantly from my conventional IRA to charity this yr, will this influence my MAGI that’s used to calculate surcharges on my 2027 month-to-month Half B and D Medicare premiums?
Pleasure Taylor: For conventional IRA homeowners 70½ or older, a tax-smart technique to give to charity is a certified charitable distribution (QCD). You may switch as much as $108,000 instantly out of your IRA to charity in 2025. These QCDs aren’t taxable to you, they don’t seem to be added to your adjusted gross earnings, and so they can rely towards your annual required minimal distribution (RMD) if executed accurately. Word that you just can’t deduct the QCD as a charitable contribution on Schedule A of the Type 1040.
As I acknowledged within the prior paragraph, one of many advantages of doing a QCD is that it’ll not be included in your adjusted gross earnings and thus gained’t have an effect on your MAGI. So, if executed proper, doing a QCD can preserve you underneath the MAGI threshold for larger Medicare premiums.
Let’s use your instance of a $25,000 charitable contribution. Say you have got a $75,000 RMD for 2025. For those who take the complete RMD as a taxable switch, you should have $75,000 of earnings added to each your 2025 MAGI and taxable earnings. For those who then make a $25,000 charitable contribution by private verify, you’d be capable to declare that as a deduction on Schedule A of your tax return, which would cut back your taxable earnings, however not your adjusted gross earnings or MAGI. If as an alternative, you make the $25,000 charitable contribution via a QCD, and also you do it in a well timed method in order that it offsets $25,000 of your $75,000 RMD for 2025, you’d be handled as receiving solely a $50,000 taxable RMD, which might be added to each your adjusted gross earnings (and MAGI) and to your taxable earnings.
About Ask the Editor, Tax Version
Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Pleasure questions on tax subjects. You may discover full particulars of easy methods to submit questions in every publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.
We now have already acquired many questions from readers on subjects associated to tax adjustments within the One Large Stunning Invoice and extra. We are going to proceed to reply these in future Ask the Editor round-ups. So preserve these questions coming!
Not all questions submitted might be revealed, and a few could also be condensed and/or mixed with different related questions and solutions, as required editorially. The solutions supplied by our editors and specialists, on this Q&A collection, are for basic informational functions solely. Whereas we take cheap precautions to make sure we offer correct solutions to your questions, this info doesn’t and isn’t meant to, represent unbiased monetary, authorized, or tax recommendation. You shouldn’t act, or chorus from appearing, based mostly on any info supplied on this function. You need to seek the advice of with a monetary or tax advisor relating to any questions you could have in relation to the issues mentioned on this article.
