What is Modified Adjusted Gross Income?

Man calculating his modified adjusted gross income

 The information in this article is up to date through tax year 2019 (taxes filed in 2020).

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.

What is adjusted gross income?

Adjusted gross income (AGI) is the sum of money you have earned from all sources, from which certain deductions will later be subtracted. Wages, salaries, tips, tax-exempt interest, qualified dividends, IRAs, pensions, annuities, and Social Security benefits are all examples of items you have to include in your AGI. The deductions you can factor in include IRA contributions, as well as self-employment tax, business expenses and others. Named “above-the-line” deductions, these can be deducted without itemizing.

What is my MAGI?

To calculate your MAGI, you will add certain deductions and tax exempt interest income back to your household AGI. Don’t be discouraged if your AGI and MAGI are the same, as this is common for many taxpayers.

Items that would get added back to your AGI include student loan interest, self-employment tax, IRA contributions or qualified tuition expenses, tuition and fees deductions, passive income or loss, rental losses, taxable Social Security payments, exclusion for income from U.S. savings bonds, and exclusion for adoption expenses.

Why is MAGI important?

Spend some time researching if you qualify for any of these tax benefits, including these lesser-known tax credits to improve your return, based on MAGI:

  • Roth IRA eligibility if you’re within the income threshold
  • Child Tax Credit
  • Adoption Tax Credit
  • American Opportunity Tax Credit

The significance of your additional MAGI determines your eligibility and may vary year to year per the IRS. For example, if you had an income of over $80,000 and filed as a single in 2018, you were not eligible for a student loan interest deduction.

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