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. 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. Certain deductions will later be subtracted from 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, 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?
The significance of your additional MAGI determines your eligibility for certain tax benefits. Spend some time researching if you qualify for any of these these lesser-known tax credits to increase your refund, based on MAGI:
- Roth IRA eligibility if you’re within the income threshold
- Child Tax Credit
- Adoption Tax Credit
- American Opportunity Tax Credit
When you file with TaxSlayer, your MAGI will be calculated for you. Get started for free today!
The information in this article is up to date through tax year 2020 (taxes filed in 2021).