What Is Modified Adjusted Gross Income (MAGI)?

What is modified adjusted gross income (MAGI)?

Modified adjusted gross income (MAGI) is your adjusted gross income (AGI) with additional deductions. It can be used to determine if you qualify for particular tax deductions.

Knowing what your MAGI is can help you figure out if you are eligible for certain tax deductions. One of the most important deductions you could qualify for, depending on your modified adjusted gross income, is the ability to deduct IRA contributions if you or your spouse have a retirement plan through your employer.

For instance, if you’re filing your taxes for 2023 as a single person, you have a workplace retirement plan and you contributed $6,500 to a traditional IRA, you could deduct that full $6,500 from your taxable income if your MAGI is $73,000 or less.

How to calculate your modified adjusted gross income

Figuring out your MAGI can be complicated, but you can break it down into three steps:

1. Figure out your gross income.

2. Find your adjusted gross income.

3. Add back certain deductions particular to MAGI.

It may seem like you are subtracting certain items only to add them back again, but because there may be some difference between the two figures it’s important to go through the exercise — even if your AGI and your MAGI end up as the same number.

1. Figure out your gross income

Your gross income is all the money you earn, including a salary from a job, capital gains from selling a house or stocks, interest or retirement income.

2. Find your adjusted gross income

Your adjusted gross income, or AGI, is your gross income minus certain amounts. Some of the most common adjustments that can be subtracted from gross income include:

• IRA contributions.

• Self-employed retirement plan contributions.

• Half of any self-employment taxes paid.

• Health savings account deductions.

• Student loan interest.

• Tuition and fees.

• Some business expenses for the performing arts, military reservists and government officials who are paid directly from the public, such as a justice of the peace.

To know exactly what adjustments you can subtract from your gross income to get your AGI, it may be best to speak with a tax professional.

» Find a tax pro near you

3. Add back certain deductions particular to MAGI

Finally, to figure out your MAGI, take your AGI and add back certain deductions.

Here are some common deductions you should add back in to find your MAGI:

• IRA contributions.

• Half of self-employment tax paid.

• Qualified tuition expenses.

• Tuition and fees deduction.

• Passive loss or income.

• Non-taxable Social Security payments.

• Exclusion for income from U.S. savings bonds.

• Foreign earned income exclusion.

• Foreign housing exclusion or deduction.

• The exclusion under 137 for adoption expenses.

• Rental losses.

• Publicly traded partnerships losses.

• Student loan interest.

Other MAGI calculations

While the above method should be able to help you figure out your MAGI, some programs and deductions calculate MAGI differently. Once you arrive at your MAGI, check each deduction or credit to see if your MAGI allows you to qualify for it. Here are a few examples of how your MAGI could be calculated for various tax deductions and credits.

To figure out if you can deduct your traditional IRA contribution:

Add your AGI and the following: Student loan interest deduction, foreign earned income and housing exclusions, foreign housing deduction, excluded savings bond interest and excluded employer adoption benefits.

If the number you arrive at is less than the traditional IRA deduction limit then you can deduct the full amount. Depending on your filing status, and if you have a workplace retirement plan, those deduction limits can change. Regardless of your MAGI, you can take the full deduction if neither you or your spouse are covered by a workplace retirement program.

» Figure out your traditional IRA deduction limit

To figure out if you are eligible for education credits (American opportunity credit and lifetime learning credit):

Add your AGI and the following: Foreign earned income and housing exclusions, foreign housing deduction, excluded bona fide resident of Puerto Rico or American Samoa income.

Both the American opportunity credit and the lifetime learning credit are phased out at certain MAGI levels. To claim the full credit in 2023, your MAGI has to be $80,000 or less ($160,000 or less for married filing jointly). For single filers with a MAGI between $80,000 and $90,000, you’ll receive a reduced credit. After $90,000 you are not eligible for the credit. For those married filing jointly the phase-out lasts between $160,000 and $180,000, over which you are not eligible. If you file with the married filing separate status, you are not eligible for these tax credits.

» Learn more: What tax credits can I qualify for?

To figure out if you are eligible for the premium tax credit:

Add your AGI and the following: Foreign earned income, tax-free interest and the tax-free portion of Social Security benefits.

The premium tax credit is a refundable credit that helps people pay for their health insurance premiums from Health Insurance Marketplace plans. If your MAGI, as calculated for the premium tax credit, is between 100 percent and 400 percent of the federal poverty line, you may be eligible. For 2022 (the most recently updated year), for a household of one, the poverty guideline was $12,880. That means if your 2022 MAGI was below $51,520 (400%), you may have qualified for the premium tax credit.

Modified adjusted gross income: The bottom line

Figuring out your MAGI is a bit of a tax system nightmare, but it has its uses. Calculating your MAGI can help you figure out if you qualify for certain tax credits and deductions — but depending on the credit or deduction, the way you calculate that number may change.

If you’re trying to figure out if you can deduct your traditional IRA contribution or other valuable tax breaks, it’s a useful number. If you’re struggling to figure out your MAGI, or what kinds of credits and deductions you may qualify for, it may be worth talking to a tax pro.