Modified adjusted gross income (MAGI) is calculated by adding certain tax deductions and tax-exempt interest income back to your adjusted gross income (AGI). It is used to determine your eligibility for certain tax credits and exemptions. The exact formula will depend on the type of tax benefit you are looking at.
When do you need to use MAGI?
You may not need to calculate your MAGI when preparing your tax return, but it becomes important when determining whether you qualify for certain tax credits, deductions, and retirement account benefits. Many tax-related income limits are based on MAGI rather than AGI because it provides a broader view of your financial situation.
Your MAGI may affect eligibility for:
- Roth IRA eligibility if you’re within the income threshold
Because many tax benefits phase out as income increases, your MAGI can directly impact whether you qualify for a full credit, a reduced credit, or no credit at all. Understanding your MAGI can help you plan and avoid surprises when filing your return.
MAGI vs. AGI
Although MAGI and AGI are closely related, they are not the same thing.
Adjusted gross income (AGI) is the sum of money you have earned from all sources, or your gross income, minus any above-the-line deductions. Wages, salaries, tips, tax-exempt interest, qualified dividends, IRAs, pensions, annuities, and Social Security benefits are all examples of items you must include in your AGI.
Examples of adjustments that may reduce your AGI include:
- Traditional IRA contributions
- Self-employment tax deductions
- Self-employed health insurance deductions
- Educator expenses
- Student loan interest deductions
Modified Adjusted Gross Income (MAGI) starts with your AGI and adds back certain deductions, exclusions, or tax-exempt income. The resulting figure is used by the IRS and other organizations to determine eligibility for specific tax benefits and programs.
Your AGI is a measure of your income after certain adjustments. Your MAGI is your AGI plus specific items that must be added back for certain tax purposes. Your AGI appears directly on your tax return, while MAGI is usually calculated only when needed for a specific credit, deduction, or program.
What does Modified Adjusted Gross Income include?
Depending on the tax benefit being calculated, your MAGI may include some or all of the following:
- Student loan interest deductions
- Traditional IRA contributions
- Qualified tuition and fees deductions
- Excluded savings bond interest
- Certain foreign earned income exclusions
- Half of the self-employment tax
- Rental losses
- Passive income or loss
- Certain Social Security benefits
- Adoption-related exclusions
The exact items included in MAGI can vary depending on the credit, deduction, or program being evaluated. That’s why there is not one MAGI calculation used for calculating all tax benefits.
How to calculate my MAGI
When you file with TaxSlayer, your MAGI will be calculated for you. Your MAGI is calculated by adding certain deductions and tax-exempt interest income back to your household AGI.
If you want to calculate your MAGI yourself, follow these steps for each specific tax benefit you are requesting.
- Find your AGI on line 11 of Form 1040
- Add or subtract the items listed for the specific tax benefit in question
- Use that MAGI amount to see if you qualify for that specific benefit
Items that would get added back to your AGI include student loan interest, self-employment tax, IRA contributions or qualified tuition expenses, passive income or loss, rental losses, taxable Social Security payments, exclusion for income from U.S. savings bonds, and exclusion for adoption expenses.
Can I find my MAGI on my tax return?
No, your MAGI does not appear on traditional federal tax forms such as your W-2 or 1040. You must calculate your MAGI using your AGI and accounting for deductions, credits, and exemptions. You can find your AGI on line 11 of Form 1040 to help you get started with calculating your MAGI.
TaxSlayer will do all the calculations for you, so you don’t have to stress about doing the math yourself.
