6 Min Read | Updated: January 29, 2024
Originally Published: May 11, 2020
What Is Modified Adjusted Gross Income?
Modify and adjust mean roughly the same thing. Here’s why our tax forms need modified adjusted gross income when we already have adjusted gross income.
At-A-Glance
Modified adjusted gross income is used to determine your eligibility for certain tax benefits, among other things.
There are many ways to calculate your modified adjusted gross income, each depending on which tax benefit or government program you’re applying for.
Understanding your modified adjusted gross income can help make sure you get the tax breaks you’re eligible for.
When it comes to filing your taxes, the notion of “income” gets more complicated than simply the money you earn from work and investments. One commonly used variation of income you have probably heard of is modified adjusted gross income (MAGI). Here’s what you need to know about it.
Why Is it Called Modified Adjusted Gross Income?
In the most basic terms, modified adjusted gross income is defined as your adjusted gross income (AGI) with certain adjustments added back in. I kid you not. I guess it would sound silly calling it “adjusted adjusted gross income,” and modify and adjust mean roughly the same thing. Your modified adjusted gross is used to determine which tax benefits you qualify for, like IRA contribution limits, Health Insurance Marketplace plans, and others.2
Now get this: The tricky thing about your modified adjusted gross is that there’s no one set formula to calculate it! It’s calculated differently depending on what it’s being used for. Only one factor remains constant: each MAGI calculation starts with your adjusted gross income.
What’s the Difference Between Adjusted Gross Income and Modified Adjusted Gross Income?
AGI and MAGI are, of course, closely related. In fact, it’s not uncommon for your MAGI to be the same as your AGI.2 They’re both adjustments – er, modifications – of your gross income used by the IRS to determine your eligibility for certain tax credits and deductions that can lower your taxes, putting more money back in your bank account or pocket. After reviewing the research for this article, I’ve come to view MAGI simply as a way for the federal government to more precisely filter who qualifies for those tax-lowering credits and other deductions.
Here are the key differences between AGI and MAGI:
- AGI is your gross income minus all eligible “above-the-line” tax adjustments.3 For more about AGI, read “What Is Adjusted Gross Income?” MAGI is your AGI with some of those adjustments added back.
- There is one set calculation to determine your AGI, whereas calculating your MAGI differs depending on which adjustments you add back in to see if you’re eligible for a specific tax break or government program.2,4
- MAGI does not appear as a single line on your tax return, but your AGI can be found on line 11 of your Form 1040 for the 2022 tax year.5
Why It’s Important to Understand Your MAGI and Its Many Uses
One important thing to remember about your MAGI is that it’s not your salary. In other words, many of the income limits for determining your eligibility for tax credits and deductions, contributing to a Roth IRA, or even getting health insurance are not based on your actual wages, but your MAGI – or AGI, depending on the tax break.1,2,6 Since your MAGI can be lower than your gross income, it increases your chance to qualify for tax breaks and so on. So, don’t assume you’re not eligible for a specific tax break because you think your gross income is too high. Calculate your MAGI first – you might qualify.
Keep an eye out for MAGI’s role in the following:
Qualifying for tax credits. Generally speaking, the lower your MAGI, the more likely you are to qualify for certain tax credits, assuming you meet all other qualifications as well. Some common tax credits that rely on your MAGI include the Premium Tax Credit, Child Tax Credit, American Opportunity (Education) Tax Credit, and Lifetime Learning Credit.1,7,8
Itemizing deductions on taxes. If you choose to itemize deductions when filing your taxes, there’s a chance you’ll have to calculate your MAGI at least once. When it comes to deductions, MAGI is often used to determine at what point certain tax deductions will begin to phase out or be reduced. For example, if you and/or your spouse are covered by a retirement plan at work and you also have a Traditional IRA, you can’t deduct your Traditional IRA contributions if your MAGI exceeds the IRS’ set limit.4
Contributing to a Roth IRA. Your MAGI directly affects how much you can contribute to a Roth IRA. The IRS uses MAGI as a baseline for determining the point at which your income is deemed too high to contribute the full amount – or any amount at all. For example, for tax year 2022, if you’re a single filer with a MAGI of less than $138,000 you can contribute the full limit to your Roth IRA. Between $138,000 and $153,000 your contribution limits are reduced, and a MAGI over $153,000 means you cannot contribute.9
Getting health insurance. If you get your health insurance coverage through a state health insurance marketplace, you may already be familiar with MAGI. Your MAGI is used to determine which health care plans you are eligible for, including Medicaid.10 The marketplace also uses your MAGI to help determine if – and how much – you can save on health insurance plans.2
How Do I Calculate Modified Adjusted Gross Income?
Every MAGI calculation depends on why you need to calculate it. The government provides appropriate instruction forms for whichever purpose you’ll need. Some adjustments you might add back include tax-exempt student loan interest, foreign earned income, or higher education costs.1,2 Here are a few examples of how MAGI is calculated:
- Health Care (aka Premium) Tax Credit: MAGI is your AGI plus any excluded foreign income, nontaxable Social Security benefits, and tax-exempt interest received during the taxable year.5,7
- Traditional IRA Tax Contribution Deduction: MAGI is your AGI plus any student loan interest deducted from Form 1040 Schedule 1, foreign earned income exclusion and/or housing exclusion, foreign housing deduction, excludable savings bond interest, and employer-provided adoption benefits.2,5
- American Opportunity Credit: MAGI is your AGI plus any foreign earned income exclusion, housing exclusion, foreign housing deduction, and any income excluded from Puerto Rico or American Samoa.2,11
The Takeaway
With its many definitions, modified adjusted gross income can be confusing. But it’s a key factor in filing your taxes, qualifying for a Roth IRA, or getting a government-subsidized health insurance plan. Understanding the role of MAGI and how to calculate yours can help you be sure to save as much money on your taxes as you’re legally allowed.
1 “Tax Tutorial Module 10: Education Credits,” IRS
2 “Modified Adjusted Gross Income (MAGI),” HealthCare.gov
3 “Definition of Adjusted Gross Income,” IRS
4 “Publication 590-A (2022), Contributions to Individual Retirement Arrangements (IRAs),” IRS
5 “Form 1040,” IRS
7 “Instructions for Form 8962 (2022),” IRS
8 “2022 Instructions for Schedule 8812 (2022),” IRS
9 “Amount of Roth IRA Contributions That You Can Make For 2023,” IRS
10 “Modified Adjusted Gross Income (MAGI),” IRS
11 “American Opportunity Tax Credit,” IRS
Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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