By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
No. MAGI (modified adjusted gross income) is your AGI with a few items added back or, in one important case, taken out, so it can be higher than AGI, equal to it, or lower. For most W-2 families living in the US, MAGI for the net investment income tax and the Child Tax Credit is exactly the same number as AGI. The main exception that runs the other way is the Roth IRA test, where income from a Roth conversion is subtracted, so MAGI can come out lower than AGI.
The useful point is that there is no single MAGI. Each tax rule defines its own version, and for a California or Washington household earning $750,000 to $3 million, a handful of those tests decide real money: whether a direct Roth IRA contribution is allowed, how big the SALT deduction is, whether the Child Tax Credit survives, and how much 3.8% surtax applies to investment income.
AGI vs MAGI: what each number is
AGI is line 11a of Form 1040 (2025 form): total income (wages, interest, dividends, capital gains, taxable retirement distributions) minus “above the line” adjustments such as a deductible traditional IRA contribution or HSA contributions made outside payroll. For a W-2 family, the biggest AGI reducers happen before the money ever reaches the return. Pre-tax 401(k) deferrals, payroll health premiums and dependent care FSA dollars are left out of W-2 box 1, so they never show up in AGI at all.
MAGI starts with that AGI and then adjusts it by a list that depends on the rule:
- Net investment income tax (NIIT). If you did not exclude foreign earned income and do not own certain foreign corporations, MAGI is your AGI, per the Form 8960 instructions.
- Child Tax Credit. AGI plus excluded Puerto Rico income, the foreign earned income and housing exclusions, and excluded American Samoa income (Schedule 8812, lines 1 to 3). For a US-based family, the same as AGI.
- Roth IRA eligibility. AGI minus income from converting a traditional IRA (or rolling a workplace plan) into a Roth, plus back any traditional IRA deduction, student loan interest deduction, foreign income exclusions, excluded savings bond interest and excluded employer adoption benefits (IRS Publication 590-A, Worksheet 2-1).
- Marketplace premium tax credit (ACA). AGI plus tax-exempt interest, foreign earned income and untaxed Social Security (Form 8962 instructions). This is the version most likely to be higher than AGI for a family holding municipal bonds.
The standard deduction and itemized deductions come after AGI, so they do not reduce AGI or any MAGI. That is a common mix-up; we cover it in Does Standard Deduction Reduce MAGI?
Which MAGI tests matter at $750,000 to $3 million of income
At this income level, most phase-outs were passed long ago. What matters is knowing which ones you are above, so nobody plans around a benefit you cannot get. For 2026:
| Rule (2026, married filing jointly) | MAGI threshold | What it means at $750k+ |
|---|---|---|
| Direct Roth IRA contribution | Phases out from $242,000 to $252,000 | Not allowed. A backdoor Roth (non-deductible IRA contribution, then conversion) is the usual route. |
| Net investment income tax, 3.8% | $250,000 (not indexed) | Applies to the lesser of net investment income or MAGI above $250,000. In practice, all investment income is hit. |
| Child Tax Credit, $2,200 per child | Reduced by $50 per $1,000 above $400,000 | Two children: gone at $488,000 of MAGI. |
| Federal SALT cap, $40,400 | Reduced by 30% of MAGI above $505,000, never below $10,000 | At $606,333 or more, the cap is $10,000. |
Sources: Roth IRA phase-out from IRS Notice 2025-67; NIIT from IRS.gov; Child Tax Credit and SALT figures from Rev. Proc. 2025-32, IRS.gov and P.L. 119-21.
Two taxes that look like MAGI tests are not. The 0.9% Additional Medicare Tax is measured on wages above $250,000 (married filing jointly), not on MAGI. The AMT exemption phase-out uses alternative minimum taxable income. Families with large RSU vests often assume all three move together; they do not.
Worked example: a $1 million Bay Area household
Assumptions (illustrative, tax year 2026): married filing jointly in California, two children ages 4 and 7. One parent is a scientist at a biotech company with a $380,000 salary and $220,000 of RSUs vesting during the year. The other is a physician earning $400,000. Gross W-2 pay is $1,000,000.
- Payroll reductions. Each parent defers the full $24,500 pre-tax to the 401(k) ($49,000 total), $6,000 of health premiums go through payroll, and they use the $7,500 dependent care FSA (assuming the employer’s plan has adopted the higher 2026 limit). W-2 box 1 wages total $937,500.
- Investment income. $18,000 of taxable dividends and interest and $30,000 of net long-term gains in a joint brokerage account. AGI is $985,500.
- Tax-exempt interest. $14,000 from California municipal bonds. Not in AGI.
- Backdoor Roth. Each parent makes a $7,500 non-deductible IRA contribution and converts it. With no other pre-tax IRA balances, close to none of the conversion is taxable.
How each MAGI comes out:
| Test | MAGI | Compared with AGI | Result |
|---|---|---|---|
| NIIT | $985,500 | Equal | 3.8% on the $48,000 of investment income: $1,824 |
| Child Tax Credit | $985,500 | Equal | $0 (above $488,000 for two children) |
| SALT cap | $985,500 | Equal | $10,000 federal cap |
| Roth IRA | $985,500 | Equal, or lower by any small taxable amount from the backdoor conversion (subtracted for this test) | No direct Roth contribution; backdoor only |
| ACA premium tax credit (only if they bought marketplace coverage) | $999,500 | Higher by the $14,000 of muni interest | Relevant only in a gap year without employer coverage |
The lesson for this family: maxing pre-tax 401(k) deferrals still cuts federal and California tax, but it does not move them back under any of these thresholds. Planning time is better spent on how the RSUs are sold, which account holds the bonds, and whether the plan offers an after-tax mega backdoor Roth. See retirement and employee benefits.
When MAGI is lower than AGI: the parental-leave year
The Roth IRA definition is the one place where MAGI regularly drops below AGI, and it matters in the years when income dips. Suppose that in 2026 one parent takes an unpaid year to be home with a newborn. Household AGI is $268,000, which includes a $40,000 conversion of an old rollover IRA to a Roth that they chose to do while their bracket was low.
AGI is above the $252,000 ceiling, so it looks like a direct Roth contribution is off the table. But for Roth IRA purposes the $40,000 of conversion income is subtracted. Roth MAGI is $228,000, below the $242,000 start of the 2026 phase-out, so each spouse can contribute the full $7,500 directly. Converting the old IRA that same year also clears the pre-tax balance that would otherwise make future backdoor Roth conversions partly taxable under the pro-rata rule.
Ideas to reduce MAGI in years near a threshold are in 4 Steps on How to Reduce Modified Adjusted Gross Income.
California and Washington: state AGI is a different number
California starts with federal AGI but adjusts it on Schedule CA. Two adjustments matter for this reader, according to the FTB Schedule CA instructions (2025). California does not allow the HSA deduction, adds back employer HSA contributions, and taxes HSA earnings each year. It also taxes interest from other states’ municipal bonds, which is tax-exempt federally. A family holding a national muni fund in California will typically have state AGI above federal AGI. California taxes all capital gains as ordinary income, up to 13.3% for 2025 at the top.
Washington has no tax on wage income for 2026. Its 7% capital gains tax (9.9% on taxable gains above $1,000,000) is calculated from federal long-term capital gains, not from MAGI. That changes in 2028: Washington enacted a 9.9% income tax on individuals and joint filers with AGI over $1,000,000, starting January 1, 2028, with the income definition still pending Department of Revenue guidance (dor.wa.gov). For an Amazon or Microsoft household close to $1 million, AGI becomes a planning number in Washington too.
Common mistakes with AGI and MAGI
- Using the wrong MAGI. Roth IRA, NIIT, Child Tax Credit and ACA each define MAGI differently. Check the worksheet for the rule in question.
- Assuming the standard deduction lowers MAGI. It does not; it is subtracted after AGI.
- Forgetting the RSU vest. RSU income is W-2 wages in the year of vest, so a large vest raises AGI and every MAGI. The 22% flat federal withholding many employers apply to it is not the tax owed at a 35% or 37% bracket.
- Making a direct Roth IRA contribution after a raise. If MAGI ends the year above $252,000, the contribution becomes an excess contribution. Unless it is withdrawn with its earnings or recharacterized by the filing deadline (including extensions), a 6% excise tax applies each year it stays (Pub 590-A).
- Counting children’s income only for the kiddie tax. If you ever claim the ACA credit, the MAGI of a dependent who is required to file a return counts in household income. See UTMA withdrawal tax rules.
What to write down for your kids
Children rarely see the tax side of a decision, only the outcome. A short note, written the year you do it, captures the reasoning: “In 2026 our income was too high for a direct Roth IRA, so we used the backdoor; in the year Dad stayed home, we converted his old IRA because our bracket was low.” By the time they have their own first job and a Roth IRA, that note teaches how income thresholds shape choices. Conversations fade. Documentation compounds.
FAQ
Is MAGI the same as AGI?
Often, yes. For a US-based W-2 family with no foreign income, MAGI for the net investment income tax and the Child Tax Credit equals AGI. It differs for Roth IRA eligibility (conversion income is subtracted, some deductions are added back) and for the ACA premium tax credit (tax-exempt interest and untaxed Social Security are added). Always check which rule you are measuring.
Where do I find AGI on my tax return?
AGI is on line 11a of Form 1040 for 2025 returns, the starting point used in the IRS MAGI worksheets. MAGI is not printed on the 1040; you calculate it with the worksheet for the specific rule, such as Worksheet 2-1 in Publication 590-A for Roth IRAs. Our guide Which Line Is MAGI on 1040? walks through it.
Can MAGI be lower than AGI?
Yes, for Roth IRA eligibility. Income from converting a traditional IRA to a Roth, or rolling a workplace plan into a Roth IRA, is subtracted from AGI before the phase-out test. That lets a family in a lower-income year do a conversion and still make a direct Roth contribution, as long as the rest of their MAGI is under the 2026 phase-out of $242,000 to $252,000 (joint filers).
Next step
Pull last year’s Form 1040 and note your AGI on line 11a, then mark which of the four tests in the table above you are clearly over. If you are close to any threshold, or a leave year or a big RSU vest is coming, our tax management team at Age Five Family Office™ can model it as part of a Tax & Wealth Assessment.
This is general education, not individual tax advice; the right move depends on the family’s full picture.
Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.
Connect on LinkedIn → · About KevinThis is part of how we approach Tax Management for high-income W-2 families at Bright Advisers.
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