What is Modified Adjusted Gross Income
Modified Adjusted Gross Income (MAGI) is your Adjusted Gross Income (AGI) plus 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.
Modified Adjusted Gross Income – Breaking it Down
To understand Modified AGI you must first understand Adjusted Gross Income (AGI).
- 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.
Which amounts need to be added to your AGI to arrive at MAGI? Well, it depends — there are different definitions of MAGI for different tax benefits.
How to calculate Modified Adjusted Gross Income
Let’s look at several common tax benefits and the modified adjusted gross income calculation for each of them.
- 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.
- 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