Modified Adjusted Gross Income

The term Modified Adjusted Gross Income, or MAGI for short, is used to determine your eligibility for a variety of tax benefits and government programs.

Modified Adjusted Gross Income, MAGI for short, is your Adjusted Gross Income (AGI) plus a few deductions and other items like exempt or excluded income and contributions to retirement plans. MAGI is a number that the IRS uses to determine your eligibility for several tax benefits, including IRA contributions, Roth accounts, government-subsidized health insurance, Children’s Health Insurance Program (CHIP), adoption and Foster Care Tax Credit, and the American Opportunity Tax Credit, Clean Vehicle Credit, and Lifetime Learning Credit. MAGI can also impact your eligibility for the Child Tax Credit, Earned Income Tax Credit, and Dependent Care Credit. Depending on your MAGI, some of these tax credits may be phased out or reduced when you reach certain thresholds.

Another common tax benefit based on MAGI is the student loan interest deduction. This allows you to deduct the interest on up to $2,500 of your student loans each year. However, the deduction begins to phase out once your modified AGI exceeds $155,000 for joint filers and $75,000 for other filers (the 2022 thresholds are $145,000 and $70,000).

Difference Between AGI and MAGI
Modified Adjusted Gross Income 1

Difference Between AGI and MAGI

You might hear the terms AGI and MAGI used interchangeably when filing taxes, but they are actually two different calculations. Adjusted gross income (AGI) is the number on line 11 of your IRS Form 1040, while modified adjusted gross income (MAGI) is your AGI plus certain adjustments added back in.

The main difference between AGI and MAGI is that MAGI is typically lower than AGI, making it more likely that you’ll qualify for tax breaks. The amount you get to contribute to a Roth IRA, the percentage of your income that counts toward your eligibility for tax credits and deductions, and many other benefits are based on MAGI, not AGI.

How is Modified Adjusted Gross Income Calculated?

The first step to calculating your MAGI is to find your total income for the year. This includes your wages, tips, business income, rental income, investment income, and any other income sources subject to taxation.

  • To calculate MAGI, you need to know your adjusted gross income (AGI) — the amount of money you earned from a 9-to-5 job, tips, rental income, retirement distributions, taxable interest, and dividends, plus any other source of taxable income. AGI is used by the Internal Revenue Service (IRS) to determine your tax bracket and whether you’re eligible for a variety of tax credits and deductions.

AGI is usually a number you’ll find on your IRS Form 1040. It’s also available in online tax software, which can make it easier to crunch the numbers. MAGI is the basis for determining your eligibility for Medicaid and other government-subsidized healthcare programs and tax benefits, such as the premium tax credit. Getting your MAGI right is critical to maximize your available benefits and save as much money on your taxes as possible.

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