# Modified Adjusted Gross Income (MAGI): Calculating and Using It

## What Is MAGI? Definition & How It Differs from AGI

Modified adjusted gross income (MAGI) is individual's adjusted gross income (AGI) after taking into account certain allowable deductions and tax penalties. MAGI is an important number to understand since it is used in several different tax concepts.  

### Key Takeaways

*   MAGI is [adjusted gross income (AGI)](https://www.investopedia.com/ask/answers/051115/what-difference-between-magi-modified-adjusted-gross-income-and-adjusted-gross-income.asp) plus certain tax deductions and exclusions added back, so it's always equal to or higher than AGI.
*   MAGI determines qualification for numerous tax benefits, including Roth IRA contributions, Traditional IRA deductions, premium tax credits, and education tax credits.
*   MAGI modifies the AGI for certain tax deductions and credits.
*   You’ll have to crunch some numbers to find your MAGI, but tax preparation software makes this easy.
*   Accurate calculation of MAGI is essential for financial and tax planning, and certain adjustments, like timing retirement contributions or recognizing specific exclusions, can impact eligibility.

![Modified Adjusted Gross Income (MAGI)](https://www.investopedia.com/thmb/78QW7j-RpOUFiaQ2nhV56bJDZ8c=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Magi-ea7d64c7ba3f426cb9a7f0bb1382aa15.jpg)

*— Investopedia / Michela Buttignol*

## Understanding Modified Adjusted Gross Income (MAGI)

Modified adjusted gross income can be defined as your household’s AGI after any [tax-exempt interest](https://www.investopedia.com/terms/t/taxexemptinterest.asp) income and after factoring in certain tax deductions. Knowing your MAGI can help reduce an individual's taxable income (to account for your retirement account contributions), factor in the eligibility for benefits like the student loan interest deduction and the Child Tax Credit, and establish eligibility for income-based Medicaid coverage or health insurance subsidies.

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

*   Whether your income does not exceed the level that qualifies you to contribute to a [Roth individual retirement account (IRA)](https://www.investopedia.com/terms/r/rothira.asp)
*   Whether you can deduct your traditional IRA contributions if you and/or your spouse have [retirement plans](https://www.investopedia.com/terms/q/qrp.asp), such as a [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) at work
*   Whether you’re eligible for the [premium tax credit](https://www.investopedia.com/premium-tax-credit-2021-definition-5115090), which lowers your health insurance costs if you buy a plan through a state or federal Health Insurance Marketplace

You can contribute to a traditional IRA no matter how much you earn. In addition, you can typically deduct the IRA contribution amount, reducing your taxable income for that tax year. However, you can’t deduct 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.

## MAGI and Its Uses

Your MAGI is an important figure, not only for understanding your taxable income but also for qualifying for certain tax credits or deductions. Several such credits and deductions have thresholds that [look at your MAGI, not your unadjusted gross income](https://www.investopedia.com/ask/answers/051115/what-difference-between-magi-modified-adjusted-gross-income-and-adjusted-gross-income.asp). MAGIs above those thresholds will see those credits or deductions phase out or disappear.

MAGI is also used to determine eligibility for healthcare waivers and incentives under the [Affordable Care Act (ACA)](https://www.investopedia.com/terms/a/affordable-care-act.asp) for states' health insurance marketplaces. It is also used as a threshold for qualifying for state Medicaid programs.

### Roth IRAs

MAGI is also used to determine your eligibility to contribute to a Roth IRA. Roth accounts use after-tax dollars and grow tax-exempt (unlike traditional retirement accounts that are instead tax-deferred).

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](https://www.investopedia.com/retirement/ira-contribution-limits/) is also determined by your MAGI. Your contributions are phased out if your MAGI exceeds the allowed limits.

Here’s a rundown of Roth IRA income limits for 2025.

### Traditional IRAs

You have to remove the excess contributions if you [contribute more than you’re allowed](https://www.investopedia.com/articles/retirement/04/042804.asp). Otherwise, you’ll face a tax penalty. Excess contributions are taxed at a rate of 6% per year for as long as the extra amount remains in your IRA.

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, then you can take the full deduction up to the amount of your contribution limit. However, if either spouse has a plan at work, then your deduction may be limited.

Here’s a rundown of traditional IRA income limits for 2025:

Tax laws are complicated and 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.

> **Important**
>
> Many deductions are not commonly used, so your MAGI and AGI could be similar or identical.

## How to Calculate Your MAGI: Basic Formula & Common Add-Backs

There are several different ways to calculate MAGI based on how MAGI is to be used. In the broadest sense, determining your MAGI is a three-step process. Additional ways to calculate MAGI for more specific reasons are in the subsequent section. In most cases, MAGI is calculated in three steps:

1.  Figure out your [gross income](https://www.investopedia.com/terms/g/grossincome.asp) 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](https://www.investopedia.com/terms/a/alimony.asp), which is court-ordered payments to a spouse due to divorce or separation
*   [Business income](https://www.investopedia.com/terms/b/businessincome.asp)
*   [Capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) or any realized gains after selling an asset for a profit
*   [Dividends](https://www.investopedia.com/terms/d/dividend.asp), which are typically cash payments to a company’s shareholders
*   [Interest](https://www.investopedia.com/terms/i/interest.asp)
*   Farm income
*   Rental and [royalty](https://www.investopedia.com/terms/r/royalty.asp) 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.

> **Fast Fact**
>
> Your gross income appears on line 9 of Form 1040.

### Calculate Your AGI

Your AGI is important because it’s the total taxable income calculated before [itemized](https://www.investopedia.com/articles/taxes/08/itemized-deductions-overview.asp) or [standard deductions](https://www.investopedia.com/terms/s/standarddeduction.asp), exemptions, and credits are taken into account. It dictates how you can use various tax credits and exemptions.

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](https://www.investopedia.com/terms/s/selfemploymenttax.asp)
*   [Health insurance premiums](https://www.investopedia.com/health-insurance-premium-4773146) (if you’re self-employed)
*   [Health Savings Account (HSA)](https://www.investopedia.com/terms/h/hsa.asp) 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  
    

> **Tip**
>
> 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](https://www.investopedia.com/terms/p/passiveincome.asp) or loss
*   Rental losses
*   The exclusion for adoption expenses

## Various MAGI Calculations

As mentioned earlier, MAGI is used to determine eligibility for certain tax benefits, subsidies, and assistance programs in a number of different ways. The specific calculations can vary depending on the context, as MAGI is used in different scenarios.

Below is a brief list of programs, taxes, or benefits that may serve for a MAGI calculation. However, the MAGI calculation will vary across each item. As you are asked to calculate MAGI for any tax credit or government program, be mindful that you are aware of which MAGI calculation is required as not all formulas are the same. Several examples include but are not limited to:

*   **IRA Deductions**: Start with your AGI, then add back any specific deductions related to traditional IRA contributions.
*   **Student Loan Interest Deduction**: Start with your AGI, then add back any student loan interest deduction you claimed.
*   **Self-Employment Tax**: Start with your AGI, then add back any specific deductions for self-employment taxes.
*   **Excluded Foreign Income**: Start with your AGI, then add back any excluded foreign income.
*   **Other Tax-Exempt Income**: Start with your AGI, then add back specific tax-exempt income such as income from municipal bonds.
*   **Social Security benefits**: Start with your AGI, then add back a portion of your Social Security benefits (though often not all).

## Strategies to Minimize MAGI

From a tax planning and strategy perspective, it's best to minimize your MAGI. Here are several tips on how to reduce your MAGI in the eyes of tax agencies:

*   **Maximize Deductions**: Take advantage of available deductions, and that doesn't always mean the standard deduction. Keep in mind other ideas such as mortgage interest, property taxes, charitable contributions, and medical expenses.
*   **Save for Retirement**: Contributing to tax-advantaged retirement accounts like 401(k)s or Health Savings Accounts (HSAs) can reduce MAGI. Your primary goal may not be to reduce your taxes when saving for the future, but these select retirement or savings vehicles have added tax benefits.
*   **Use Other Tax-Advantaged Vehicles**: Investing in tax-advantaged vehicles such as municipal bonds, Roth IRAs, or [529 college savings plans](https://www.investopedia.com/terms/1/529plan.asp) can also reduce your MAGI. If you're looking to generate income but also want to minimize taxes, be mindful how you hold the investments.
*   **Harvest Capital Losses**: Harvesting losses is a strategy to offset capital gains. If you weren't able to use the tax-advantaged accounts in the last bullet, you can still find ways to reduce taxable income derived from investment accounts.
*   **Closely Monitor Rental Investments**: Managing rental properties may entail a lot of different costs; to optimize MAGI, maximize deductible expenses and properly report rental income (which requires close management of the property).  
    

## What Purpose Does MAGI Serve?

The IRS uses MAGI to determine whether you qualify for specific tax programs and benefits. For instance, it helps to determine the allowed amount of your Roth IRA contributions. Knowing your MAGI can also help you avoid 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.

## What Is the Difference Between MAGI and AGI?

Your modified adjusted gross income (MAGI) is your adjusted gross income (AGI) plus additional items such as student loan interest, qualified education expenses, passive income or losses, IRA contributions, and foreign income, among others.

## 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 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.

## The Bottom Line

Modified adjusted gross income (MAGI) is important for your tax returns to determine what you owe the IRS. It takes your gross income and adjusts and modifies it for certain exemptions, qualifications, and allowances. Your MAGI will differ from your adjusted gross income (AGI) if you have foreign income, qualified education expenses, or passive losses, among other items.

_**Correction—Feb. 11, 2025:** A previous version of this article incorrectly stated that contributing to a traditional IRA can reduce your MAGI._

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