Did a Raise Push You Into a Higher Tax Bracket? 5 Legal Ways To Lower Your MAGI
You’ve worked hard and put in long hours to earn that raise. Now, victory is yours. But your hard work hasn’t just boosted your paycheck — it may have pushed you into a higher tax bracket. Before you start regretting those extra hours spent perfecting that award-winning spreadsheet, don’t stress.
A higher income can raise your modified adjusted gross income (MAGI) and affect things like credits, deductions, Medicare premiums and retirement contribution eligibility. The good news: there are fully legal, above-the-line ways to lower your MAGI.
What Is MAGI — and Why Does It Matter?
Need a refresher on MAGI and why it matters? According to Fidelity, MAGI “represents your annual income once a number of adjustments and modifications have been made to it. It’s essentially your adjusted gross income (AGI) with certain above-the-line deductions added back in.”
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Those four letters can have a big impact on which tax credits and deductions you qualify for, which retirement accounts you can contribute to or deduct contributions for, and even your eligibility for certain government programs or surcharges.
Because many tax benefits phase out at specific MAGI thresholds, even a modest raise can tip you over the line — reducing or eliminating valuable breaks.
1. Know That Timing Is Everything
Joe Braier, president and CEO of Lake Country Advisors, helps clients develop long-term tax strategies that reduce current bills while accounting for future income and tax exposure. When it comes to lowering MAGI, he says timing and structure matter — especially within the tax year and contribution deadlines.
One approach is leveraging pre-tax retirement contributions, Health Savings Account (HSA) funding, and deductible business expenses, where applicable. Timing is key: these strategies are most effective if implemented before the end of the tax year. That said, certain retirement contributions can still be made up to the tax-filing deadline, depending on your plan and circumstances — a good reason to check in with an expert.
“The easiest one is usually adding to 401(k) deferrals or making SEP IRA contributions as large as possible in self-employed situations,” Braier said, noting that aligning contributions with high-income periods maximizes both cash flow and tax impact.
2. Use an HSA if You Can
Braier calls the HSA “one of the least used individual finance tools.” When you contribute to an HSA, it lowers your taxable income, and that money grows tax-free. Later, withdrawals for eligible medical expenses aren’t taxed.
“It is only available to individuals enrolled in a high-deductible health plan, but for those who are, it’s one of the few triple-tax-advantaged accounts you can open,” he said. “Many clients use HSAs during high-income years to reduce MAGI and manage benefit phaseouts.”
HSA contributions are above-the-line deductions, meaning you can take them even if you do not itemize.
3. Don’t Forget FSAs
If your employer offers a flexible spending account (FSA), it’s another way to reduce taxable income — and your MAGI.
Health care FSA: Covers medical, dental and vision expenses not paid by insurance.
Dependent care FSA: Pays for child care or elder care while you work.
Since FSAs reduce taxable income, they can help you stay under phaseout limits for Roth IRA contributions or education credits. But plan carefully: FSAs are generally “use it or lose it,” and contributions don’t roll over like HSAs. Some employers allow a limited rollover or grace period, but rules vary. Only contribute what you realistically expect to spend during the year.
4. Let the Student Loan Interest Deduction Help
If you’re paying interest on a qualified student loan, you might deduct up to $2,500 annually from your taxable income. This can lower your MAGI even if you take the standard deduction.
Katelyn Washington of Kiplinger notes that more people may qualify than they realize: “Both private and federal student loans qualify, and both required and voluntary interest payments are deductible.”
As an above-the-line deduction, you claim it before calculating your AGI, which in turn can reduce your MAGI and open the door to other credits and deductions.
Keep in mind that this deduction phases out at higher income levels, so a raise could reduce or eliminate your eligibility.
5. Harvest Investment Losses
Selling taxable investments at a loss can reduce your MAGI, explains Mark Annese, IRMAACP, writing for Retirement Advisor Pro.
“Capital losses offset capital gains, reducing your total taxable income,” he said. “The key is balancing profits from high-performing assets with losses on underperforming ones.”
Annese emphasizes planning this strategy carefully, ideally with a trusted advisor, to avoid compromising your investment goals.
The Bottom Line
Celebrate your raise — you earned it. And while higher income brings some tax considerations, smart strategies can help you reduce your MAGI and maximize the benefits of your hard work.
If you're close to a phaseout threshold, even small adjustments before year-end can make a meaningful difference.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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