How to Calculate Your Modified Adjusted Gross Income (MAGI)

The IRS uses MAGI to determine IRA eligibility and other qualifications. This affects how much you can contribute to a Roth IRA in any tax year.

How can I find my Modified Adjusted Gross Income (MAGI)?

Your Modified Adjusted Gross Income (MAGI) is likely very close to your Adjusted Gross Income (AGI). The AGI is the total amount of income you earn in a year, after deducting certain allowable expenses.

The Adjusted Gross Income (AGI) is used as a starting point to calculate your overall income tax and to determine whether you can claim various tax credits and deductions on your taxes, such as:

• Deductions for charitable contributions
• Deductions for adoption expenses
• Tax credits for qualified dependents
• Earned income tax credit

You do not need to add any pre-tax contributions made to your Adjusted Gross Income (AGI), such as contributions to employer-sponsored retirement plans like a 401(k) plan.

The lower your AGI, the lower your tax bill will be. This means that it is often in your best interest to reduce your AGI as much as possible. How much you can do this depends on your various earnings and sources of income. One way to reduce your AGI is to deduct as many allowable expenses from the total amount as you can.

If you’re not sure how to do this on your own, a tax professional can help you. You can also use tax preparation software that will assist you in finding legal ways to lower your AGI.

How can I find my Modified Adjusted Gross Income (MAGI)?

You won’t find your Modified Adjusted Gross Income (MAGI) on your tax return, but you can easily determine it yourself.

Start with your Adjusted Gross Income (AGI) from your Form 1040. Then, get a calculator and add the following:

• Any IRA deductions you made
• Any deductions you made for student loan interest or tuition fees
• Passive income or losses
• Foreign income excluded
• Rental losses if you are a property owner
• Interest from EE savings bonds used for college expenses
• Half of self-employment tax (Form 1040, Schedule 1)
• Adoption expenses paid by the employer (Form 8839)
• Any losses from a publicly traded partnership

The total amount with these amounts added back is your MAGI. For many people, it will be higher than your AGI. In some cases, they may be the same number.

Note: Your gross income is sometimes referred to as “total income.” This is the total amount you earn in a tax year. It includes wages, salaries, bonuses, business income, and capital gains.

How does the IRS use your Modified Adjusted Gross Income (MAGI)?

MAGI determines whether you can contribute to a tax-deductible IRA. If the total is above a certain amount, you will not be able to deduct any contributions you made to the IRA for that tax year.

For example, as of the tax year 2021, if you are filing your tax return as a single individual or as a head of household and you are covered by a retirement plan at work, you cannot deduct your IRA if your MAGI is $76,000 or more.

These limits change based on your tax status. For example, married couples filing jointly can have a MAGI of up to $125,000.

The IRS also uses your MAGI to determine whether you qualify for a tax deduction for tuition and fees.

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These limits only change based on your tax situation, but they also change each tax year. You will need to consult a tax advisor or calculate the numbers yourself to determine your MAGI position. This will allow you to know what deductions you can take at tax time.

Frequently Asked Questions (FAQs)

Where do I find the modified adjusted gross income (MAGI) line on my Form 1040?

MAGI is not included in your tax return, but you can use the information on your Form 1040 to calculate it. You will need to find your adjusted gross income (AGI) (line 8b) and add several deductions to it, including deductions for IRA contributions, student loan interest, tuition, and certain types of income losses, among others.

How can I lower my modified adjusted gross income (MAGI)?

The best way to lower your MAGI is to reduce your AGI. You can do this by contributing larger amounts to expenses that qualify as above-the-line deductions. These contributions include HSA contributions, healthcare expenses that exceed 10% of your AGI, pre-tax retirement plan contributions, capital losses, mortgage interest, property taxes, and charitable donations.

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Sources:

• Internal Revenue Service. “IRA Deduction Limits.”
• Internal Revenue Service. “Amount of Roth IRA Contributions That You Can Make for 2020.”
• HealthCare.gov. “What to Include as Income.”
• Centers for Medicare & Medicaid Services. “American Rescue Plan and the Marketplace.”
• Internal Revenue Service. “Adjusted Gross Income.”
• Internal Revenue Service. “Publication 525 (2020), Taxable and Nontaxable Income.”
• Internal Revenue Service. “Credits & Deductions for Individuals.”
• Internal Revenue Service. “Can I Deduct My Charitable Contributions?”
• Internal Revenue Service. “Topic No. 607 Adoption Credit and Adoption Assistance Programs.”
• Internal Revenue Service. “The Child Tax Credit Benefits Eligible Parents.”
• Internal Revenue Service. “Do I Qualify for the EITC?”
• U.S. Congress. “H.R.1319—American Rescue Plan Act of 2021,” Sec. 9621, Pages 149-150.
• Internal Revenue Service. “401(k) Plan Overview.”
• Internal Revenue Service. “Publication 925 (2020), Passive Activity and At-Risk Rules.”
• Treasury Direct. “Education Planning.”
• Internal Revenue Service. “Topic No. 554 Self-Employment Tax.”
• Internal Revenue Service. “Topic No. 607 Adoption Credit and Adoption Assistance Programs.”
• Internal Revenue Service. “Publication 536 (2020), Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.”
• Internal Revenue Service. “Income Ranges for Determining IRA Eligibility Change for 2021.”
• IRS. “Lowering AGI This Year Can Help Taxpayers When They File Next Year.”

Source: https://www.thebalancemoney.com/how-to-calculate-your-modified-adjusted-gross-income-4047216