The modified adjusted gross income is a crucial figure. First and foremost, it decides whether you are eligible to contribute to a Roth IRA and if you are eligible to deduct IRA contributions. It also affects your eligibility for some tax advantages and credits for schooling. It also determines your eligibility for discounted health insurance plans and income-based Medicaid on the Health Insurance Marketplace.
Despite its significance, you won’t see this number on your tax return. To figure out your MAGI, you’ll have to do some math. MAGI is your household’s adjusted gross income after subtracting any tax-exempt interest income and certain deductions.
Modified Adjusted Gross Income (MAGI) in the simplest terms is your Adjusted Gross Income (AGI) plus a few items — like exempt or excluded income and certain deductions. The IRS uses your MAGI to determine your eligibility for certain deductions, credits and retirement plans. MAGI can vary depending on the tax benefit.
-
Gross Income – This is the money you earn from all sources, including wages, tips, investment income, pension or rents.
-
Adjusted Gross Income – This is your Gross Income with certain allowable deductions subtracted but does not include the standard or itemized deductions or any exemptions.