What Is Modified Adjusted Gross Income?
Modified Adjusted Gross Income (MAGI) in the simplest terms is your Adjusted Gross Income (AGI) plus a few adjustments added back to the equation. The IRS uses your MAGI to determine your eligibility for certain deductions, credits and retirement plans.
Modified Adjusted Gross Income – Breaking It Down
Figuring out your MAGI starts with your Gross Income and 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. The adjustments available to you will vary by which tax form you use, either Form 1040ez, Form 1040a, or Form 1040.
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 for different tax benefits. However, there are some common threads. For instance, most calculations add excluded foreign earned income back — but not necessarily foreign housing exclusions.
How to Calculate Modified Adjusted Gross Income
Let’s look at several common tax benefits and how we arrive at Modified Adjusted Gross Income for each of them. You can generally determine what goes into MAGI by looking at the form instructions.
- Traditional IRA Deductibility: MAGI is calculated by adding AGI plus the student loan interest deduction, foreign earned income and housing exclusions, excluded savings bond interest, excluded employer adoption benefits, and, for 2017 and earlier, the domestic production activities deduction and the tuition and fees deduction.
- Roth IRA Eligibility: MAGI is the same calculation as Traditional IRA formula above plus any Traditional IRA deduction.
- 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, excluded Puerto Rico income and American Samoa income.
- Child Tax Credit: MAGI is calculated by adding AGI plus foreign earned income and housing exclusions, excluded income from Puerto Rico and excluded income for bona fide residents of American Samoa.
Once you know the relevant Modified Adjusted Gross Income for a specific tax benefit, you can determine if you can take full or partial advantage of it.
Modified Adjusted Gross Income Help
Still have questions about how to calculate MAGI for your situation? Our Tax Pros can help. They’re dedicated to knowing the nuances of taxes and can help you understand your return.
Make an Appointment to speak with a Tax Pro today.
Up to 50% or even 85% of your Social security benefits are taxable if your “provisional” or total income, as defined by tax law, is above a certain base amount. Your Social Security income may not be taxable at all if your total income is below the base amount.
How should you use form 1099-PATR to report a patronage dividend? Learn more from the tax experts at H&R Block.
If you are giving large gifts this year, it's important to know the IRS rules surrounding gift taxes. Learn more about the gift tax exclusion at H&R Block.
What are education savings accounts, and how do they affect your taxes? Discover more about ESAs and get tax answers at H&R Block.