Modified Adjusted Gross Income (MAGI)

What Is Modified Adjusted Gross Income (MAGI)?

Your modified adjusted gross income (MAGI) is your adjusted gross income (AGI) after taking into account certain allowable deductions and any tax penalties. It is an important number to understand since it can help with the following:

Key Takeaways

  • Modified adjusted gross income, or MAGI, adjusts the AGI for certain tax deductions and credits.
  • You’ll have to crunch some numbers to find your MAGI, but tax prep software makes this work easy.
  • MAGI can change your eligibility for certain programs like qualified retirement account contributions.
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Modified Adjusted Gross Income (MAGI)

Understanding Modified Adjusted Gross Income (MAGI)

MAGI can be defined as your household's AGI after any tax-exempt interest income and certain deductions are factored in.

The Internal Revenue Service (IRS) uses MAGI to establish whether you qualify for certain tax benefits. Most notably, MAGI determines:

For example, you can contribute to a traditional IRA no matter how much money you earn. Typically, you can deduct the IRA contribution amount, reducing your taxable income for that tax year. However, you can't deduct those contributions when you file your tax return if your MAGI exceeds limits set by the IRS and you and/or your spouse have a retirement plan at work.

Calculating Your MAGI

Determining your MAGI is a three-step process:

  1. Figure out your gross income for the year.
  2. Calculate your AGI.
  3. Add back certain deductions to calculate your MAGI.

Figure out your gross income

Your gross income includes everything you earned during the year from:

  • Alimony, which are court-ordered payments to a spouse due to divorce or separation
  • Business income
  • Capital gains or any realized gains after selling an asset for a profit
  • Dividends, which are typically cash payments to a company's shareholders
  • Interest
  • Farm income
  • Rental and royalty income
  • Retirement income
  • Tips
  • Wages

There are two scenarios in which alimony payments are not considered gross income. The first is if your divorce agreement was executed after 2018. The second is if your divorce agreement was executed before 2019 but later modified to expressly state that such payments are not deductible for the payer.

Your gross income appears on line 9 of Form 1040.

Calculate your AGI (or find it on your tax return)

Your AGI is important because it’s the total taxable income calculated before itemized or standard deductions, exemptions, and credits are taken into account. It dictates how you can use various tax credits and exemptions. For example, AGI affects the amount of money you can claim for the child tax credit.

Your AGI is equal to your gross income, minus certain tax-deductible expenses, including:

  • Certain business expenses for performing artists, reservists, and fee-basis government officials
  • Educator expenses
  • Half of any self-employment taxes
  • Health insurance premiums (if you’re self-employed)
  • Health savings account (HSA) contributions
  • Moving expenses for members of the armed forces moving due to active duty
  • Penalties on early withdrawal of savings
  • Retirement plan contributions (including IRAs and self-employed retirement plan contributions)
  • Student loan interest

You can do the math to figure out your AGI, or you can find it on line 11 of Form 1040.

Add back certain deductions

To find your MAGI, take your AGI and add back:

  • Any deductions you took for IRA contributions and taxable Social Security payments
  • Deductions you took for student loan interest
  • Tuition and fees deduction
  • Half of self-employment tax
  • Excluded foreign income
  • Interest from EE savings bonds used to pay for higher education expenses
  • Losses from a partnership
  • Passive income or loss
  • Rental losses
  • The exclusion for adoption expenses

Many of these deductions are not commonly used, so your MAGI and AGI could be similar or even identical.

Special Considerations

Roth IRAs

To contribute to a Roth IRA, your MAGI must be below the limits specified by the IRS. If you’re within the income threshold, the actual amount you can contribute is also determined by your MAGI. If your MAGI exceeds the allowed limits, your contributions are phased out.

Here are the Roth IRA income limits for 2021:

2021 Roth IRA Income Limits
If your filing status is… And your modified AGI is… You can contribute…
Married filing jointly or qualifying widow(er) Less than $198,000 Up to the limit
  More than $198,000 but less than $208,000 A reduced amount
  $208,000 or more Zero
Single, head of household, or married filing separately and you didn't live with your spouse at any time during the year Less than $125,000 Up to the limit
  More than $125,000 but less than $140,000 A reduced amount
  $140,000 or more Zero
Married filing separately and you lived with your spouse at any time during the year Less than $10,000 A reduced amount
  $10,000 or more Zero

Here's a rundown of Roth IRA income limits for 2022:

2022 Roth IRA Income Limits
If your filing status is… And your modified AGI is… You can contribute…
Married filing jointly or qualifying widow(er) Less than $204,000 Up to the limit
  More than $204,000 but less than $214,000 A reduced amount
  $214,000 or more Zero
Single, head of household, or married filing separately and you didn't live with your spouse at any time during the year Less than $129,000 Up to the limit
  More than $129,000 but less than $144,000 A reduced amount
  $144,000 or more Zero
Married filing separately and you lived with your spouse at any time during the year Less than $10,000 A reduced amount
  $10,000 or more Zero

Note that if you contribute more than you’re allowed, you have to remove the excess contributions. Otherwise, you’ll face a tax penalty. Excess contributions are taxed at a rate of 6% per year for as long as the excess amount remains in your IRA.

Traditional IRAs

Your MAGI and whether you and your spouse have retirement plans at work determine whether you can deduct traditional IRA contributions. If neither spouse is covered by a plan at work, you can take the full deduction up to the amount of your contribution limit. However, if either spouse has a plan at work, your deduction could be limited.

Here's a rundown of traditional IRA income limits for 2021:

2021 Traditional IRA Income Limits
If your filing status is… And your modified AGI is… Then you can take…
Single, head of household, qualifying widow(er), married filing jointly or separately and neither spouse is covered by a plan at work Any amount A full deduction up to the amount of your contribution limit
Married filing jointly or qualifying widow(er) and you're covered by a plan at work $105,000 or less A full deduction up to the amount of your contribution limit
  More than $105,000 but less than $125,000 A partial deduction
  $125,000 or more No deduction
Married filing jointly and your spouse is covered by a plan at work $198,000 or less A full deduction up to the amount of your contribution limit
  More than $198,000 but less than $208,000 A partial deduction
  $208,000 or more No deduction
Single or head of household and you're covered by a plan at work $66,000 or less A full deduction up to the amount of your contribution limit
  More than $66,000 but less than $76,000 A partial deduction
  $76,000 or more No deduction
Married filing separately and either spouse is covered by a plan at work Less than $10,000 A partial deduction
  $10,000 or more No deduction

Here's a rundown of traditional IRA income limits for 2022:

2022 Traditional IRA Income Limits
If your filing status is… And your modified AGI is… Then you can take…
Single, head of household, qualifying widow(er), married filing jointly or separately and neither spouse is covered by a plan at work Any amount A full deduction up to the amount of your contribution limit
Married filing jointly or qualifying widow(er) and you're covered by a plan at work $109,000 or less A full deduction up to the amount of your contribution limit
  More than $109,000 but less than $129,000 A partial deduction
  $129,000 or more No deduction
Married filing jointly and your spouse is covered by a plan at work $204,000 or less A full deduction up to the amount of your contribution limit
  More than $204,000 but less than $214,000 A partial deduction
  $214,000 or more No deduction
Single or head of household and you're covered by a plan at work $68,000 or less A full deduction up to the amount of your contribution limit
  More than $68,000 but less than $78,000 A partial deduction
  $78,000 or more No deduction
Married filing separately and either spouse is covered by a plan at work Less than $10,000 A partial deduction
  $10,000 or more No deduction

Tax laws are complicated and do change periodically. If you need help figuring out your MAGI, or if you have any questions about IRA contribution and income limits, contact a trusted tax professional.

How Do I Calculate My Modified Adjusted Gross Income (MAGI)?

Calculating your MAGI is relatively straightforward. To do so, first calculate your adjusted gross income (AGI) and then add back any of the deductions specified by the IRS that apply to your situation. Examples of these deductions include income from foreign sources, interest from certain savings bonds, and expenses related to adopting a child. Because MAGI involves adding back these deductions, MAGI will always be greater than or equal to AGI. To calculate your MAGI:

  • Add up your gross income from all sources.
  • Check the list of "adjustments" to your gross income and subtract those that you qualify for from your gross income. The list is on the 1040 form under Schedule 1.
  • The resulting number is your AGI.
  • Add back any deductions you qualify for, which can include student loan interest and IRA contributions.
  • The resulting number is your MAGI.

What Purpose Does MAGI Serve?

The IRS uses MAGI to determine whether you qualify for certain tax programs and benefits. For instance, it helps determine the allowed amount of your Roth IRA contributions. Knowing your MAGI can also help you avoid facing tax penalties because over-contributing to these programs and others like them can trigger interest payments and fines. Your MAGI can also determine eligibility for certain government programs, such as the subsidized insurance plans available on the Health Insurance Marketplace.

Can MAGI and AGI Be the Same?

Yes, MAGI and AGI can be the same. For many people, the list of deductions that need to be added back to AGI in order to calculate MAGI will not be relevant. For instance, those who did not earn any foreign income would have no reason to use that deduction and would have none of those earnings to add back to their AGI.

Article Sources

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