Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. For many people, the list of after tax income definition deductions that need to be added back to AGI to calculate MAGI will not be relevant. For instance, those who did not earn any foreign income would have no reason to use that deduction and would have none of those earnings to add back to their AGI.
When you know your after-tax income, you can make more informed decisions about everything from household spending to investment choices. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. But if it’s a pre-tax or traditional account, any money withdrawn before age 59½ is fully taxable and subject to a hefty early withdrawal penalty. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more.
Contributions to Retirement Accounts
A state individual income tax reduces the after-tax income of people living in a state and the after-tax return of investments made by pass-through businesses in a state. State individual income taxes vary across the country, with some states like Florida imposing no individual income tax, while California taxes income at a top rate of 13.3 percent. Thus, a worker earning an income of $100,000 might have a different after-tax income depending on what state he or she lives in. Certain individuals and pass-through businesses relocate to low-income tax states in order to maximize their after-tax income. Companies can judge whether to pursue a project by determining whether it meets a required after-tax rate of return, or hurdle rate. Projects that yield greater after-tax income are more economically attractive for a business to pursue.
The Tax Cut and Jobs Act’s full expensing provision, allowing the immediate write-off of full business investment costs for certain investments, will be in effect until 2022 before it begins phasing out. Although tax and accounting rules have similarities, each system has special rules reflecting its distinctive context and purposes. All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. It’s vital to understand this concept because a failure to do so can lead to financial missteps.
Understanding Modified Adjusted Gross Income (MAGI)
This estimate is a more appropriate measure than pretax income or gross income because after-tax cash flows are what the entity has available for consumption. “Net” refers to the amount left over after reducing (including) a specific amount in the calculation. Some companies may also offer tax-advantaged benefits like pre-tax deductions for purchasing transportation cards as part of their employee benefit plans.