Personal Finance Mar 07, 2024 02:02 PM EST

The Secret Way Congress Cuts Your Tax Breaks

By Isaiah McCall

We all love a good tax break. Who wouldn't?

But what if I told you that there's a hidden way Congress might be shrinking those beloved tax breaks right under your nose? Buckle up, because we're about to dive into the world of MAGI, and no, we're not talking about the three wise men.

Taxes
(Photo : Getty Images) Taxes

What is MAGI?

MAGI stands for Modified Adjusted Gross Income. It's a little-understood feature of the tax code, and it's causing a lot of Americans to miss out on benefits they thought they were entitled to.

In simple terms, your AGI (Adjusted Gross Income) is your total income minus certain deductions. Your MAGI is your AGI with some of those deductions added back in. The IRS uses this number to determine your eligibility for certain tax benefits.

The MAGI Effect

You might be wondering, "Why should I care about this MAGI thing?" Well, here's the kicker: Congress has been tying the thresholds for various tax benefits to MAGI.

Let me give you an example from my own life. A few years ago, I was thrilled to find out I was eligible for a certain tax break because of my AGI. But then, when I factored in my MAGI, I found out I was just over the threshold. Talk about a letdown!

The Hidden Impact

This practice of tying tax benefits to MAGI has a sneaky way of reducing the value of your tax breaks. It's like Congress is giving with one hand and taking away with the other. This is particularly impactful for middle-income taxpayers who are often left scratching their heads, wondering why they're not getting the benefits they expected.

The Congressional Conundrum

This isn't to say that our representatives in Congress are twirling their mustaches while they plot to steal our tax breaks. In fact, many of them probably don't fully understand the impact of these policies3.

Furthermore, there's a lot of pressure on Congress to keep the tax code complex. For instance, during the recent tax deal stall in the Senate, several business benefits were imperiled due to complications around MAGI and other tax provisions4.

What Can You Do?

While we can't single-handedly change the tax code, we can take steps to better understand it. By educating ourselves about concepts like MAGI, we can make more informed decisions and potentially avoid unpleasant tax surprises.

Consider consulting with a tax professional who can help you navigate these complexities. I did this after my own MAGI mishap, and it made a world of difference.

Wrapping Up

In the end, the tax code is a labyrinth, and MAGI is just one of its many twists and turns. By shedding light on these hidden aspects, we can empower ourselves as taxpayers and advocate for a more transparent and equitable tax system.

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