What is Modified Adjusted Gross Income (MAGI)

What Is Modified Adjusted Gross Income

Modified adjusted gross income or MAGI is your adjusted gross income but with a few more factors added to your equation.

IRS uses your MAGI for determining your eligibility for several credits, deductions, and retirement plans.

The formula for modified adjusted gross income will depend on what type of tax benefit you are looking for because there is no exact formula set for calculating Modified adjusted gross income or MAGI though one factor remains the same while calculating MAGI which is adjusted gross income or AGI.

What is The Difference Between AGI and MAGI?

Both AGI and MAGI are closely related to each other but then also there are some different factors.

Both are being used by IRS for determining your eligibility for certain tax deductions and credits which will lower your taxes and help you to ass some extra money to your bank account.

There is a fixed formula for calculating adjusted gross income (AGI) but there is no formula set for calculating modified adjusted gross income (MAGI).

MAGI does not appear as a single line on your tax return, but you can find your AGI on line 8b of your form 1040.

How To Calculate MAGI

MAGI calculation depends on why you need to calculate it and in what factors you want to calculate that.

Below are some examples by which you will get to know how to calculate MAGI>

  • Traditional IRA Tax Deduction: MAGI is calculated by adding student load interest, foreign earned income and housing exclusion, domestic production activities, excluded employer adoption benefits, excludable saving bond interest in your AGI, or adjusted gross income.
  • Child Tax Credit: MAGI is calculated by adding foreign earned income and housing exclusion, excluded income from Puerto Rico, and excluded income for bona fide residents of American Samoa in your AGI.
  • Education Credits: MAGI is calculated by the same process as Child Tax Credit has been calculated.
  • Roth IRA Eligibility: MAGI is calculated by the same formula of traditional IRA plus adding traditional IRA deduction.
  • Net Investment Income Tax: MAGI is calculated by adding foreign earned income exclusion in AGI
  • Premium Tax Credit: MAGI is calculated by adding foreign earned income, tax-free interest, and the tax-free portion in social security benefits in your AGI.

Why It Is Important To Understand Your Magi And It’s Uses

One important thing you need to understand about your MAGI is that it’s not your salary. In other words, determining your eligibility for tax credits and deductions, contributing to a Roth IRA, or getting health insurance are not based on your actual income, but your MAGI.

What is The Role of MAGI?

Qualifying for tax credits you need to have lower MAGI, then more likely you are to qualify for certain tax credits (assuming you meet all other qualifications).

Some common tax credits that depend on your MAGI include the Health Care Tax Credit, Child Tax Credit, American Opportunity (Education) Tax Credit, and Lifetime Learning Credit.

Itemizing deductions on taxes: If you want to itemize deductions when filing your taxes, there’s a chance you’ll need to calculate your MAGI at least once. When it comes to deductions, MAGI is often used to determine at what point certain tax deductions will begin to phase out or be reduced.

For example, if you are covered by a retirement plan at work and you also have a Traditional IRA, you can’t deduct your Traditional IRA contributions if your MAGI exceeds the IRS’ set limit.

Contributing to a Roth IRA: Your MAGI directly affects how much you can contribute to a Roth IRA. The IRS uses MAGI as a baseline for determining the point at which your income is deemed too high to contribute the full amount—or any amount at all.

For example, if you’re a single filer with a MAGI of less than $122,000 you can contribute the full limit to your Roth IRA. Between $122,000 and $137,000, your contribution limits are reduced, and a MAGI over $137,000 means you cannot contribute.

Getting health insurance: If you get your health insurance coverage through a state health insurance marketplace, you may already be familiar with MAGI. Your MAGI is used to determine which health care plans you are eligible for, including Medicaid.

The marketplace also uses your MAGI to help determine if and how much you can save on health insurance plans.


Modified adjusted gross income is an important factor in filing your taxes, qualifying for a Roth IRA, or even getting a health insurance plan.

Understanding the role of MAGI and how to calculate your MAGI can help you in saving as much money on your taxes as you can.

In the end, MAGI might provide you the eligibility for different types of credits, deductions, increments, or retirement plans.

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