What is modified adjusted gross income (MAGI)?
Modified Adjusted Gross Income (MAGI) in the simplest terms is your Adjusted Gross Income (AGI) plus a few items — like exempt or excluded income and certain deductions. The IRS uses your MAGI to determine your eligibility for certain deductions, credits and retirement plans. MAGI can vary depending on the tax benefit.
What is MAGI?
“What is Modified Adjusted Gross Income,” you wonder? Modified Adjusted Gross Income (or MAGI for short) is an important tax term to understand for a number of reasons. Learn more about MAGI and where to go for help determining it here.
Modified Adjusted Gross Income – Breaking it down
Figuring out your Modified AGI starts with your Gross Income and then your AGI. We’ll review those here.
- Gross Income – This is the money you earn from all sources, including wages, tips, investment income, pension or rents.
- Adjusted Gross Income – This is your Gross Income with certain allowable deductions subtracted but does not include the standard or itemized deductions or any exemptions.
So, what is MAGI and the formula to calculate it? Which amounts need to be added to your AGI? Well, it depends — there are different definitions of MAGI for different tax benefits. However, there are some common threads.
For instance, most calculations add excluded foreign earned income back, but not all add back excludable savings bond interest and excludable adoption benefits. When determining MAGI for a particular tax benefit, you should know the definition of MAGI for purposes of that particular benefit.
How to calculate Modified Adjusted Gross Income
Want to know how to calculate Modified Adjusted Gross Income? We’ll cover that here.
Let’s look at several common tax benefits and the modified adjusted gross income calculation for each of them. You can generally determine what goes into it by looking at the form instructions.
- Traditional IRA Deductibility: MAGI is calculated by adding AGI plus the following:
- student loan interest deduction,
- foreign earned income and housing exclusions,
- foreign housing deduction,
- excluded savings bond interest,
- excluded employer adoption benefits, and,
- for 2017 and earlier, the domestic production activities deduction and the tuition and fees deduction paid before 2021.
- Roth IRA Eligibility: MAGI is the same calculation as Traditional IRA formula above plus any Traditional IRA deduction reduced by income from a conversion of an IRA to a Roth IRA or a rollover from a qualified plan to a Roth.
- Net Investment Income Tax: MAGI is calculated by adding AGI plus the foreign earned income exclusion and certain adjustments for foreign investments. Review additional information about Form 8960 and Net Investment Income Tax.
- Premium Tax Credit: MAGI is calculated by adding AGI plus foreign earned income, tax-free interest, and the tax-free portion of Social Security benefits.
- Education Credits: MAGI is calculated by adding AGI plus foreign earned income and housing exclusions, foreign housing deduction, excluded bona fide resident of Puerto Rico or American Samoa income
- Child Tax Credit: MAGI is calculated by adding AGI plus foreign earned income and housing exclusions, foreign housing deduction, excluded income from Puerto Rico and excluded income for bona fide residents of American Samoa.
Once you know the relevant MAGI for a specific tax benefit, you can determine if you can take full or partial advantage of it.
Where to get Modified Adjusted Gross Income calculation help
Still questioning, “what is modified adjusted gross income” and about how to calculate it? Our tax pros can help. They’re dedicated to knowing the nuances of taxes and can help you understand your tax return to maximize available credits and deductions.
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