What is modified adjusted gross income (MAGI)?

Understanding your taxable income can get tricky. You hear multiple tax definitions circling around—but it can be tough to know the difference between one from the other.

It’s likely Modified Adjusted Gross income is one of those tax terms you’ve encountered.  Modified Adjusted Gross Income (MAGI) in the simplest terms is your Adjusted Gross Income (AGI) plus a few items—like exempt or excluded income and certain deductions. The Internal Revenue Service (IRS) uses your MAGI to determine your eligibility for certain tax deductions, credits, and retirement savings plans. MAGI can vary depending on the tax benefit.

What is MAGI?

“What is Modified Adjusted Gross Income?” Modified Adjusted Gross Income (or MAGI for short) is an important tax term to understand for a number of reasons. Learn more about MAGI and where to go for help determining it this tax year here.

Why does Modified Adjusted Gross Income (MAGI) matter?

Income limits apply to common tax breaks. MAGI, in particular, is used to determine eligibility for several tax-related benefits, including:

• Roth IRA contributions: Retirement contribution (income) limits to a Roth retirement account are based on your MAGI. (Related: Learn about how Roth IRAs are taxed.)
• Deductibility of retirement contributions made to a Traditional IRA: If you or your spouse are covered by a retirement plan at work, your MAGI will determine your eligibility and amount. (Related: Rules for Roth and Traditional IRA contributions.)
• Tax credits: MAGI is used to determine eligibility for education tax credits, the Premium Tax Credit, and the Child Tax Credit.
• Net Investment Income Tax: Net Investment Income Tax (NIIT) is a tax imposed on certain types of investment income for individuals, estates, and trusts. Whether your investment income is subject to NIIT depends on if your MAGI exceeds the $200,000 ($250,000 for joint filers) threshold.

How to calculate Modified Adjusted Gross Income: Breaking it down

Figuring out your Modified AGI starts with your gross income and then your AGI. We’ll review those concepts here.

• Gross Income—This is the money you earn from all sources, including wages, tips, business income, alimony payments, investment income, capital gains, pensions, or rents.
• Adjusted Gross Income (AGI)—This is your Gross Income with certain allowable deductions subtracted but does not include the standard or itemized deductions. Learn more in our post: What is AGI?

Modified Adjust Gross Income calculation examples

Want to know how to calculate Modified Adjusted Gross Income exactly? Which amounts need to be added to your AGI? Well, it depends since you’ll calculate MAGI differently for different tax benefits. However, there are some common threads.

For instance, most calculations add excluded foreign earned income back, but not all add back excludable savings bond interest and excludable adoption benefits.

Let’s see how Modified Adjusted Gross Income is calculated for some common tax items. Note that some items have different add backs in addition to foreign earned income.

• Traditional IRA Deduction: 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
• Roth IRA eligibility: MAGI for Roth IRA contribution is the same calculation as the Traditional IRA formula above plus any deduction amount reduced by income from a conversion of an IRA to a Roth IRA or a rollover from a qualified plan to a Roth.
• Premium Tax Credit: MAGI is calculated by adding AGI plus excluded or deducted foreign earned income or foreign housing, tax-exempt 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 income by bona fide residents of Puerto Rico or American Samoa.
• Child Tax Credit: MAGI is calculated by adding AGI plus foreign earned income and housing exclusions, foreign housing deduction, excluding income from Puerto Rico, and excluded income by bona fide residents of American Samoa.
• 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.

Once you know the relevant MAGI for a specific tax benefit, you can determine if you can take full or partial advantage of it.

Need more tax guidance? You can generally determine what goes into it by looking at the corresponding form instructions.

Get help filing and claiming tax benefits based on your Modified Adjusted Gross Income

H&R Block can help with tax preparation. We’re dedicated to knowing the nuances of taxes to maximize available credits and deductions to minimize your taxable income.

Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.