How to Calculate Modified AGI

Nobody enjoys paying taxes, and it can feel like the IRS taxes you on every penny you earn. But fortunately, it doesn't. When you file your taxes, you can make adjustments by taking certain deductions and credits that lower your gross income. This lowers the amount on which you must pay taxes. This lowered income is called your adjusted gross income (AGI).

However, sometimes the IRS requires you to add some of those deductions back to your AGI. After doing that, you're left with a number called the modified adjusted gross income (MAGI).

Usually, your AGI and MAGI amounts are very close, or even exactly the same, because most of the deductions that get added back aren't common ones. But it's important to calculate your MAGI in case it does affect your taxes. For example, if you have an IRA (individual retirement account), it may make a difference in your deductions. The IRS uses your MAGI to determine if you are eligible for certain credits or deductions -- primarily IRA deductions and Roth IRA contributions.

Keep reading to learn how your MAGI differs from your AGI, and how to calculate it on your taxes.

Contents

AGI vs. Modified AGI
Calculating Your Modified AGI

AGI vs. Modified AGI

Before we delve into how to calculate your modified adjusted gross income (MAGI), let's discuss the difference between MAGI and regular adjusted gross income (AGI).

Your AGI, as opposed to your total gross income, can affect any tax deductions and credits for which you may be eligible -- and thus reduce your amount of taxable income. Here's how you calculate your AGI.

Use Form 1040 to take advantage of all possible deductions and adjustments
Report all your taxable income, including job earnings, income from alimony, or any bank account interest
Subtract any deductions or adjustments for which you are eligible (things like alimony payments, education expenses and student loans)

This is your adjusted gross income. Your MAGI, on the other hand, is almost like going in reverse. Calculating your MAGI takes some of those deductions away. The IRS starts to phase out certain deductions and credits as your income increases, which is why we have the MAGI. When you add these back into the total, the IRS gets a more accurate account of what you truly earned over the past year.

However, there are only certain circumstances when your AGI and MAGI will wildly differ -- in most cases, these numbers will be close. Find out when they will differ on the next page.

Calculating Your Modified AGI

By determining your modified adjusted gross income (MAGI), the IRS determines whether you can take advantage of certain tax perks. Typically, your MAGI helps the IRS decide how much of your IRA contributions you can deduct from your taxes, as well as any property rental losses or education expenses. The higher your MAGI, the fewer credits or deductions you can take on your tax return.

Here's an example for tax year 2020 (2021). Suppose you are a single filer and you have a retirement plan at work. You can take a full deduction for your IRA if your MAGI is $65,000 or less or a partial deduction if your MAGI is between $65,000 and $75,000.

Here's how to calculate your modified AGI when doing your taxes.

On IRS Form 1040, use lines 7 through 21 to report all of your income. This includes everything -- wages, salary, alimony, interest, capital gains. The total goes on line 22.
Lines 23 through 35 let you list your deductions, which is how you calculate your adjusted gross income (AGI). You total these on line 36 and then subtract line 36 from line 22. Now you have your AGI.
Next, you must remove certain deductions to determine your MAGI. After subtracting those deductions from your AGI, you have your modified AGI.

Deductions you must add back to calculate your MAGI include:

Passive income (income from an enterprise in which you're not actively involved, like rental property or a limited partnership)
IRA contributions
Foreign-earned income
Rental losses
Student loan interest
Employer-paid adoption benefits
Savings bond interest
Foreign housing exclusion

The IRS also provides a basic calculation worksheet on the IRS.gov website if you're a DIY kind of person.

For more about taxes and deductions, check out the links on the next page.

Modified Adjusted Gross Income or Modified AGI FAQ

What is the difference between AGI and MAGI?

AGI, or adjusted gross income, is your gross income minus any allowable adjustments or subtractions. For example, it's all the money you earned in a year, with the costs of your IRA contributions and student loan interest payments deducted. MAGI, or modified adjusted gross income, is a different method of calculating your AGI. To get your MAGI, you'll add back in some of the deductions and subtractions you took out previously.

Is MAGI after standard deduction?

MAGI does not include the standard deduction.

How do I reduce my modified adjusted gross income?

There are a few different ways to reduce your MAGI. Some options include contributing to a health savings account, adding money into a traditional IRA, or contributing to an employer-sponsored 401(k).

Are 401K contributions included in modified adjusted gross income?

If you've made contributions to a 401(k), the total amount you contributed will be deducted from your modified gross income -- which will in turn lower your MAGI.

Do IRA contributions reduce Magi?

Any contributions made to a traditional IRA will reduce your total MAGI. However, contributions made to a Roth IRA will not.

Lots More Information

Sources

Bird, Beverly. "Adjusted Gross Income Vs. Modified AGI." Houston Chronicle. 2014. (Oct. 15, 2014) http://smallbusiness.chron.com/adjusted-gross-income-vs-modified-agi-21324.html
Csiszar, John. "How to Determine My Modified Adjusted Gross Income." Zacks. 2014. (Oct. 15, 2014) http://finance.zacks.com/determine-modified-adjusted-gross-income-2956.html
IRS. "Passive Activity Loss ATG - Exhibit 2.2: Modified Adjusted Gross Income Computation." IRS.gov. 2004. (Oct. 15, 2014) http://finance.zacks.com/determine-modified-adjusted-gross-income-2956.html
Novel Investor. "How To Find Your Modified Adjusted Gross Income." Jan. 2, 2014. (Oct. 15, 2014) http://novelinvestor.com/taxes/modified-adjusted-gross-income/
TurboTax. "What is Adjusted Gross Income (AGI)?" Intuit. 2013. (Oct. 15, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Taxes-101/What-is-Adjusted-Gross-Income--AGI--/INF19180.html
TurboTax. "What Is the Difference Between AGI and MAGI on Your Taxes?" Intuit. 2013. (Oct. 15, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/What-Is-the-Difference-Between-AGI-and-MAGI-on-Your-Taxes-/INF22699.html