What is modified adjusted gross income (MAGI)?
Modified adjusted gross income (MAGI) is your adjusted gross income (AGI) with certain tax deductions and tax-exempt interest income added. Understanding your MAGI can be important for retirement planning or for determining your eligibility for government health programs or tax credits.
And while it’s not a specific line item on your tax return, learning how to calculate it can play a role in tax preparation or financial planning.
What you’ll learn:
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MAGI is a way to calculate your income that accounts for certain tax deductions.
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Your MAGI can be used to determine whether you’re eligible to contribute to a retirement account or if you qualify for specific government programs or tax incentives.
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Your MAGI isn’t on your tax return, but you can use your gross income and adjusted gross income (AGI) to calculate it.
What is MAGI used for?
You or your tax preparer can calculate MAGI manually or by using software to determine:
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Whether you’re eligible for certain tax benefits, like tax credits, tax deductions or exclusions
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Whether you qualify for state Medicaid programs based on income thresholds
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Whether you’re eligible for healthcare savings, like waivers or incentives, through various marketplace health insurance plans
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Whether your income falls within the Roth individual retirement account (IRA) limits
- Whether you can deduct traditional IRA contributions
MAGI vs. AGI
AGI is your gross income minus various adjustments, like student loan interest, which can reduce how much you owe in taxes. MAGI is your AGI plus certain deductions and tax-exempt interest.
In many cases, your AGI and MAGI are close—and sometimes, they can even be the same number. AGI is listed on IRS Form 1040, line 11, while MAGI isn’t shown as a specific line item.
Both AGI and MAGI can affect your eligibility for certain tax credits and deductions. But one of the more common reasons for calculating your MAGI is to determine whether you can deduct contributions made to an IRA or contribute to a Roth IRA.
How to calculate MAGI
There are different ways to calculate your MAGI depending on what it’s being used for. Here are the general steps:
1. Determine your gross income
2. Determine your AGI
This refers to your gross income minus various adjustments, including:
- Health savings account (HSA) deductions
- Alimony payments
- Unemployment compensation
- Educator expenses
You can figure out your AGI manually or by referring to line 11 of IRS Form 1040. Or if you use a tax preparer or tax software, your AGI may be calculated for you.
3. Calculate your MAGI
Once you know your AGI, you can figure out your MAGI by adding various deductions. The deductions you include in your MAGI calculation can differ depending on the reason you’re calculating it. Deductions might include:
- Student loan interest deductions
- Foreign earned income exclusions
- Foreign housing deductions
- Excluded savings bond interest
- IRA contribution deductions
- Taxable Social Security payments
- Half of any self-employment taxes
MAGI FAQ
Here are the answers to a few of the most commonly asked questions about MAGI:
How do you reduce your MAGI?
Some ways to lower your MAGI include:
- Contributing to a tax-advantaged retirement account, like a 401(k) or HSA
- Maximizing deductions, like mortgage interest, charitable contributions or eligible medical expenses
- Allocating funds toward tax-advantaged investments, like Roth IRAs or 529 college savings plans
MAGI may include nontaxable Social Security benefits but not Supplemental Security Income (SSI).
Where can I find my MAGI on my tax return?
MAGI isn’t on a specific line on your tax return. But you can find your AGI on line 11 of your IRS Form 1040. You could then use that to manually calculate your MAGI by adding back in certain deductions.
Key takeaways: What is MAGI?
MAGI is your AGI with certain items added back in. Knowing your MAGI could help you determine which credits or deductions you may be eligible for.
Want to learn more about taxes? Check out this guide for a closer look at what to know when filing taxes, or consider reaching out to a tax professional.
