User Avatar

By Ryan Kennelly

November 27, 2019

Topics:

  • Individual & Family Health Insurance
BACK TO BLOG

How do I Calculate Your Modified Adjusted Gross Income (MAGI)?

November 27, 2019

  • Individual & Family Health Insurance

Your modified adjusted gross income (MAGI) determines your eligibility for important tax benefits, including whether you can deduct contributions to an individual retirement account (IRA) or contribute directly to a Roth IRA. Eligibility for education tax benefits and certain income tax credits are also based on MAGI. Under the Affordable Care Act, eligibility for income-based Medicaid and subsidized health insurance through the marketplaces is calculated using your household MAGI. The first thing to recognize is that your total income, modified adjusted gross income, and your adjusted gross income (AGI), are not the same thing. For tax planning purposes, you must understand the differences.

Finding Your Adjusted Gross Income

Your adjusted gross income and your modified adjusted gross income are likely to be fairly close in value to one another. Your AGI is the total amount of income you make in a year, minus certain deductible expenses.

Adjusted gross income encompasses all your income, including:

  • Wages
  • Investment income
  • Business income
  • Retirement income
  • Alimony
  • Rental income
  • Farm income

The total amount of income then is “adjusted” by subtracting tax-deductible expenses. These may include:

It’s generally in your best interests to lower your AGI as much as possible, given your earnings. You should find as many tax-deductible expenses as possible to subtract from the total.

Tip: You don't need to add to your AGI any pre-tax contributions made to 
employer-sponsored plans such as 401(k)s.

How to Calculate Your MAGI

You won’t find your modified adjusted gross income on your tax return. Fortunately, it’s easy to calculate.

Start with your adjusted gross income, the figure on the last line of the front of your 1040. (It is possible the location will change when the new 1040 is revealed for the 2020 tax season.)

Then find yourself a calculator, and add back:

How the IRS Uses Your MAGI

Know your modified adjusted gross income so you can determine whether you can make tax-deductible contributions to individual retirement accounts. For example, as of 2019, if you are a single or head-of-household filer on your tax return and are covered by a retirement plan at work, you aren’t eligible to take an IRA deduction if you had a MAGI of $74,000 or higher. The limit is $123,000 for married couples filing jointly. The IRS also uses the MAGI to determine if you’re eligible to take a tax deduction for tuition and fees.

Since the limits in these situations differ depending on your filing status, you’ll need to consult a tax adviser or tally the numbers yourself to see where you stand with your MAGI.

Want to Join Independent
Health Agents?

We’d be happy to have your join our team of independent agents.

JOIN NOW