Modified Adjusted Gross Income
Modified Adjusted Gross Income (MAGI) is an individual’s total Gross Income after certain deductions and adjustments are made, used primarily to determine eligibility for various tax benefits, Credits, and government programs.
MAGI is calculated by taking the Adjusted Gross Income (AGI) and adding back certain deductions that were subtracted from the total income. Common additions include:
- Tax-exempt interest income
- Foreign earned income exclusions
- Deductible contributions to traditional IRAs
Example 1: If an individual has a total income of $80,000, and their AGI is $70,000 after deductions for student loan interest and contributions to a retirement account, but they also have $2,000 in tax-exempt interest income, their MAGI would be:
MAGI = AGI + Tax-exempt interest = $70,000 + $2,000 = $72,000
Example 2: A couple filing jointly has a total income of $120,000. After deductions, their AGI is $100,000. They also qualify for a $5,000 foreign earned income exclusion. Their MAGI would be:
MAGI = AGI + Foreign earned income exclusion = $100,000 + $5,000 = $105,000
MAGI is crucial for determining eligibility for programs like: