Modified adjusted gross income (MAGI): What it is and how to calculate it

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When it comes time to do your taxes, most people will seek the help of a CPA or a tax software. However, even if you’re outsourcing this annual task, it’s a good idea to have some background knowledge about what you’ll be paying to the IRS, including understanding your adjusted gross income and modified adjusted gross income.

What is modified adjusted gross income?

Modified adjusted gross income (MAGI) is your adjusted gross income (AGI) with certain adjustments (modifications) added back in. If you want to know whether you qualify for certain tax benefits, you’ll need to know your modified adjusted gross income.

To determine your MAGI, knowing a few terms is necessary:

  • Gross income: All the money  you earn, whether it’s from a 9-5 job, tips, rental income, etc.
  • Adjusted gross income: Your gross income after subtracting allowable tax-deductible expenses, such as IRA deductions, health insurance if you’re self-employed, etc.

How to calculate modified adjusted gross income

After determining your gross income and adjusted gross income, you can easily calculate your modified adjusted gross income.

Take your adjusted gross income from your Form 1040. Now, add back some of the deductions that were made, such as:

  • Deductions you took from student loan interest and tuition.
  • Half of self-employment tax.
  • Foreign income that’s been excluded.
  • Losses from a publicly traded partnership.
  • Deductions from your IRA contributions.

How your modified adjusted gross income affects you

Once you know your MAGI, you will know if you’re eligible for certain tax benefits and/or whether you will be able to take a tax deduction for things like tuition, and/or if you can make tax deductible contributions to your retirements account. These options — and knowing your MAGI — are important because it could end up helping you out financially.

For instance, your MAGI can help you determine:

  • Whether you can contribute to a Roth IRA.
  • If you’re able to deduct traditional IRA contributions depending on whether you or your spouse have a retirement plan from their employer.
  • If you’re eligible for a premium tax credit that you can use toward health insurance plans.

Modified adjusted gross income (MAGI) vs. adjusted gross income (AGI)

The numbers are similar, but they will be slightly different and will have a different impact on your taxes. While AGI is used to determine your eligibility to claim deductions and credits available to you via your tax return, MAGI is used to determine how much of your IRA contribution is tax-deductible and whether that person can be eligible for premium tax credits.

Written by
Hana LaRock
Insurance Contributor
Hana LaRock is a freelance writer with more than seven years of experience. Though she has written in many niches, Hana enjoys writing about personal finance, and has appeared on Business Insider, Pocketsense, The Billfold, Benzinga, and BankRate, just to name a few. When she's not writing, you can find her traveling, reading, or scrapbooking.