MAGI stands for Modified Adjusted Gross Income. It is a calculation used by the IRS to determine eligibility for certain tax benefits and subsidies
When it comes to taxes, investments and healthcare, understanding the various terms related to income is essential. One term that you may have come across is modified adjusted gross income (MAGI). But what exactly is MAGI, and how does it differ from other income-related terms like gross income and adjusted gross income (AGI)? While it might sound like yet another financial term you need to learn and master, it’s an important one in understanding your tax liability and maximizing your tax benefits. Benzinga breaks down the concept of MAGI, how it is calculated, and why it is important to your overall financial wellbeing.
What is Modified Adjusted Gross Income (MAGI)?
Modified adjusted gross income (MAG) is a term the IRS uses to define your adjusted gross income based on deductions and write-offs you qualify for. It is an important element in determining whether you are eligible for various tax benefits.
To understand MAGI, you have to first know other key income terms because calculations start with your gross income and adjusted gross income.
- Gross income: The money you earn from all sources is your gross income. This includes your wages, bonuses, tips and rental property income.
- Adjusted gross income: Once you know your gross income, you’ll remove allowable deductions, such as the standard deduction or itemized deductions based on what is best for your household.
MAGI is a bit more complicated because the IRS outlines various income thresholds to take advantage of different tax benefits. So just because your MAGI makes you eligible for one, it might exclude you from another.
To determine your MAGI, some tax benefits will be added back in certain types of income, such as savings bond interest, while others will not.
What is MAGI used for?
The IRS uses modified adjusted gross income for a variety of purposes, making it important to determine and understand to ensure you comply with tax law. The main uses of MAGI include determining eligibility for:
Premium Tax Credits
The premium tax credit is available to individuals and families with MAGI between 100% and 400% of the federal poverty level. This helps individuals and families afford health insurance through the Health Insurance Marketplace. Individuals with a MAGI within that range may qualify for this tax credit, which can lower their monthly insurance premiums.
Traditional IRA Deductions
Individuals with MAGI below certain thresholds may be eligible to deduct their contributions to a traditional IRA from their taxable income, reducing their overall tax liability.
Here's a summary table showing how much deductions you can qualify based on filing status and MAGI.
| Filing status | 2023 traditional IRA income limit | 2024 traditional IRA income limit | Deduction limit |
| Single or head of household covered by retirement plan at work | $73,000 or less | $77,000 or less | Full deduction up to the amount of your contribution limit |
| More than $73,000, but less than $83,000 | More than $77,000, but less than $87,000 | Partial deduction | |
| $83,000 or more | $87,000 or more | No deduction | |
| Married filing jointly or qualifying widow(er) covered by retirement plan at work | $116,000 or less | $123,000 or less | Full deduction up to the amount of your contribution limit |
| More than $116,000, but less than $136,000 | More than $123,000, but less than $143,000 | Partial deduction | |
| $136,000 or more | $143,000 or more | No deduction | |
| Married filing jointly or separately NOT covered but with a spouse who is covered by a retirement plan at work | $218,000 or less | $230,000 or less | Full deduction up to the amount of your contribution limit |
| More than $218,000, but less than $228,000 | More than $230,000, but less than $240,000 | Partial deduction | |
| $228,000 or more | $240,000 or more | No deduction | |
| Married filing separately covered by a retirement plan at work; married filing separately with spouse who is covered by plan at work | Less than $10,000 | Less than $10,000 | Partial deduction |
| $10,000 or more | $10,000 or more | No deduction | |
| Single, head of household, qualifying widow(er); married filing jointly or separately NOT covered by a retirement plan at work but your spouse is | Any amount | Any amount | Full deduction up to the amount of your contribution limit |
Roth IRA Contributions
Individuals with MAGI below certain thresholds may be eligible to contribute to a Roth IRA, which offers tax-free growth and withdrawals in retirement.
Here’s a rundown of the 2023 Roth IRA income and contribution limits.
| Filing status | Roth IRA income limits | Roth IRA contribution limits 2023 |
| Single, head of household, or married, filing separately (if you didn't live with spouse during year) | Less than $138,000 | $6,500 ($7,500 if 50 or older) |
| More than $138,000, but less than $153,000 | Contribution is reduced | |
| $153,000 or more | No contribution allowed | |
| Married filing jointly or qualifying widow(er) | Less than $218,000 | $6,500 ($7,500 if 50 or older) |
| More than $218,000, but less than $228,000 | Contribution is reduced | |
| $228,000 or more | No contribution allowed | |
| Married filing separately (if you lived with spouse at any time during year) | Less than $10,000 | Contribution is reduced |
| $10,000 or more | No contribution allowed |
Here’s a rundown of the 2024 Roth IRA income and contribution limits.
| Filing status | Roth IRA income limits | Roth IRA contribution limits 2024 |
| Single, head of household, or married filing separately (if you didn't live with spouse during year) | Less than $146,000 | $7,000 ($8,000 if 50 or older) |
| $146,000 or more, but less than $161,000 | Contribution is reduced | |
| $161,000 or more | No contribution allowed | |
| Married filing jointly or surviving spouse | Less than $230,000 | $7,000 ($8,000 if 50 or older) |
| $230,000 or more, but less than $240,000 | Contribution is reduced | |
| $240,000 or more | No contribution allowed | |
| Married filing separately (if you lived with spouse at any time during year) | Less than $10,000 | Contribution is reduced |
| $10,000 or more | No contribution allowed |
Health Insurance Subsidies
When applying for health insurance through the Affordable Care Act marketplace, your MAGI is used to determine how much of a subsidy you may qualify for to help lower your monthly premium costs.
Medicaid Eligibility
MAGI is used to determine eligibility for Medicaid, a government-funded health insurance program for low-income individuals and families. Each state has its own income limits based on MAGI for Medicaid eligibility.
The Children's Health Insurance Program (CHIP)
Similar to Medicaid, MAGI is used to determine eligibility for CHIP, a program that provides low-cost health coverage to children in low-income families.
What Is the Difference Between MAGI and AGI?
MAGI, or Modified Adjusted Gross Income, is a calculation used to determine eligibility for certain tax deductions and credits. It includes adjustments to your Adjusted Gross Income (AGI) such as foreign income, student loan interest and IRA contributions. AGI is the total income you earn in a year, minus certain deductions such as retirement contributions and student loan interest. In essence, AGI is the starting point for calculating MAGI.
How Do I Calculate My Modified Adjusted Gross Income?
In most cases, calculating your MAGI involves the following three steps:
1. Calculate Your Gross Income
Gross income includes money earned from wages, salaries, bonuses, tips, commissions, rental income, dividends, interest and any other sources of income. It is important to note that gross income does not take into account any deductions such as taxes, retirement contributions, or other expenses.
2. Calculate Your Adjust Gross Income
Deduct the following to get your adjusted gross income:
- Contributions to your health savings account
- Early savings withdrawal penalties
- Educator expenses
- Half of your self-employment tax
- Moving expenses for active duty military
- Qualifying business expenses for performing artists, fee-basis government officials and reservists
- Retirement plan contributions
- Self-employed health insurance premiums
- Student loan interest paid that year
3. Include Deductions to Determine Your MAGI
From your adjusted gross income, to get your MAGI, add back the following deductions:
- Adoption expense exclusions
- EE savings bond interest that you used to pay for higher education
- Excluded foreign income
- Half of self-employment tax
- IRA contribution deductions and taxable Social Security payments
- Partnership losses
- Passive income or loss
- Rental losses
- Student loan interest deductions
- Tuition and fees deduction
How Do I Reduce My Modified Adjusted Gross Income?
Reducing your modified adjusted gross income can make you eligible for more tax benefits or place you in a lower tax bracket, thereby lowering your tax liability. Here’s a look at some ways to reduce your MAGI:
- Contribute additional funds to your 401(k)
- Increase health savings account (HSA) contributions
- Make a deductible IRA contribution
- Earn less money
- Maximize write-offs by documenting expenses, such as educator expenses
Understanding Your Tax Filing to Maximize Write-Offs and Benefits
For many, taxes are a complex maze of confusion that they complete annually alongside a tax advisor. But it doesn’t have to be that way. Learning more about the various benefits, write-offs and exclusions and how each is calculated can help you prepare for tax season and make the most of your income based on your unique situation.
Frequently Asked Questions
Where can I find my MAGI on my tax return?
You’ll find your MAGI on certain worksheets that aid in calculating various tax forms. One common place to find MAGI is on line 11 of Form 1040.
Is MAGI before or after the standard deduction?
MAGI is before claiming the standard deduction, which gets factored in later.
Does MAGI include capital gains?
Yes, MAGI includes capital gains.
Does MAGI include gifts?
No, MAGI does not include gifts.
Does 401k reduce MAGI?
Contributions that you make to your 401(k) can reduce your MAGI.
About Rebekah Brately
Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.