Modified Adjusted Gross Income (MAGI)
What Is Modified Adjusted Gross Income (MAGI)?
The term modified adjusted gross income (MAGI) alludes to an individual's adjusted gross income (AGI) in the wake of considering certain permissible deductions and tax punishments. It is an important number to comprehend since it can assist with diminishing an individual's taxable income (to account for your retirement account contributions), factor in the qualification for benefits like the student loan interest deduction and the Child Tax Credit, and lay out qualification for income-based Medicaid coverage or health care coverage appropriations.
Grasping Modified Adjusted Gross Income (MAGI)
Modified adjusted gross income can be defined as your household's AGI after any tax-exempt interest income and in the wake of factoring in certain tax deductions. The Internal Revenue Service (IRS) utilizes MAGI to lay out whether you fit the bill for certain tax benefits. MAGI outstandingly determines:
- Whether your income doesn't exceed the level that qualifies you to add to a Roth individual retirement account (IRA)
- Whether you can deduct your traditional IRA contributions on the off chance that you as well as your spouse have [retirement plans](/qrp, for example, a 401(k) at work
- Whether you're eligible for the premium tax credit, which brings down your medical coverage costs in the event that you buy a plan through a state or federal Health Insurance Marketplace
You can add to a traditional IRA regardless of how much money you earn. You can ordinarily deduct the IRA contribution amount, decreasing your taxable income for that tax year. In any case, you can't deduct contributions when you file your tax return on the off chance that your MAGI exceeds limits set by the IRS and you or potentially your spouse have a retirement plan at work.
Special Considerations
Roth IRAs
To add to a Roth IRA, your MAGI must be below the limits indicated by the IRS. In the event that you're inside the income threshold, the genuine amount you can contribute is likewise determined by your MAGI. In the event that your MAGI exceeds the permitted limits, your contributions are phased out.
Here are the Roth IRA income limits for 2021:
| 2021 Roth IRA Income Limits | ||
|---|---|---|
| If your filing status is… | And your modified AGI is… | Then you can contribute… |
| Married filing jointly or qualifying widow(er) | Less than $198,000 | Up to the limit |
| Â | More than $198,000 but less than $208,000 | A reduced amount |
| Â | $208,000 or more | Zero |
| Single, head of household, or married filing separately and you didn’t live with your spouse at any time during the year | Less than $125,000 | Up to the limit |
| Â | More than $125,000 but less than $140,000 | A reduced amount |
| Â | $140,000 or more | Zero |
| Married filing separately and you lived with your spouse at any time during the year | Less than $10,000 | A reduced amount |
| Â | $10,000 or more | Zero |
| 2022 Roth IRA Income Limits | ||
|---|---|---|
| If your filing status is… | And your modified AGI is… | Then you can contribute… |
| Married filing jointly or qualifying widow(er) | Less than $204,000 | Up to the limit |
| Â | More than $204,000 but less than $214,000 | A reduced amount |
| Â | $214,000 or more | Zero |
| Single, head of household, or married filing separately and you didn’t live with your spouse at any time during the year | Less than $129,000 | Up to the limit |
| Â | More than $129,000 but less than $144,000 | A reduced amount |
| Â | $144,000 or more | Zero |
| Married filing separately and you lived with your spouse at any time during the year | Less than $10,000 | A reduced amount |
| Â | $10,000 or more | Zero |
Assuming you offer more than you're permitted, you need to eliminate the excess contributions. If not, you'll face a tax penalty. Excess contributions are taxed at a rate of 6% each year however long the excess amount stays in your IRA.
Your MAGI and whether you and your spouse have retirement plans at work determine whether you can deduct traditional IRA contributions. In the event that neither one of the spouses is covered by a plan at work, you can take the full deduction up to the amount of your contribution limit. Be that as it may, on the off chance that either spouse has a plan at work, your deduction might be limited.
Here is a summary of traditional IRA income limits for 2021:
| 2021 Traditional IRA Income Limits | ||
|---|---|---|
| If your filing status is… | And your modified AGI is… | Then you can take… |
| Single, head of household, qualifying widow(er), married filing jointly or separately and neither spouse is covered by a plan at work | Any amount | A full deduction up to the amount of your contribution limit |
| Married filing jointly or qualifying widow(er) and you’re covered by a plan at work | $105,000 or less | A full deduction up to the amount of your contribution limit |
| Â | More than $105,000 but less than $125,000 | A partial deduction |
| Â | $125,000 or more | No deduction |
| Married filing jointly and your spouse is covered by a plan at work | $198,000 or less | A full deduction up to the amount of your contribution limit |
| Â | More than $198,000 but less than $208,000 | A partial deduction |
| Â | $208,000 or more | No deduction |
| Single or head of household and you’re covered by a plan at work | $66,000 or less | A full deduction up to the amount of your contribution limit |
| Â | More than $66,000 but less than $76,000 | A partial deduction |
| Â | $76,000 or more | No deduction |
| Married filing separately and either spouse is covered by a plan at work | Less than $10,000 | A partial deduction |
| Â | $10,000 or more | No deduction |
| 2022 Traditional IRA Income Limits | ||
|---|---|---|
| If your filing status is… | And your modified AGI is… | Then you can take… |
| Single, head of household, qualifying widow(er), married filing jointly or separately and neither spouse is covered by a plan at work | Any amount | A full deduction up to the amount of your contribution limit |
| Married filing jointly or qualifying widow(er) and you’re covered by a plan at work | $109,000 or less | A full deduction up to the amount of your contribution limit |
| Â | More than $109,000 but less than $129,000 | A partial deduction |
| Â | $129,000 or more | No deduction |
| Married filing jointly and your spouse is covered by a plan at work | $204,000 or less | A full deduction up to the amount of your contribution limit |
| Â | More than $204,000 but less than $214,000 | A partial deduction |
| Â | $214,000 or more | No deduction |
| Single or head of household and you’re covered by a plan at work | $68,000 or less | A full deduction up to the amount of your contribution limit |
| Â | More than $68,000 but less than $78,000 | A partial deduction |
| Â | $78,000 or more | No deduction |
| Married filing separately and either spouse is covered by a plan at work | Less than $10,000 | A partial deduction |
| Â | $10,000 or more | No deduction |
Numerous deductions are not normally utilized, so your MAGI and AGI could be comparative or even indistinguishable.
Computing Your MAGI
Determining your MAGI is a three-step process:
- Figure out your gross income for the year.
- Work out your AGI.
- Add back certain deductions to work out your MAGI.
Figure Out Your Gross Income
Your gross income incorporates all that you earned during the year from:
- Alimony, which are court-requested payments to a spouse due to divorce or partition
- Business income
- Capital gains or any realized gains in the wake of selling an asset for a benefit
- Dividends, which are commonly cash payments to an organization's shareholders
- Interest
- Farm income
- Rental and royalty income
- Retirement income
- Tips
- Compensation
There are two situations in which alimony payments are not viewed as gross income. The first is assuming your divorce agreement was executed after 2018. The second is assuming your divorce agreement was executed before 2019 however later modified to explicitly state that such payments are not deductible for the payer.
Your gross income shows up on line 9 of Form 1040.
Ascertain Your AGI
Your AGI is important in light of the fact that it's the total taxable income calculated before itemized or standard deductions, exemptions, and credits are considered. It directs how you can utilize different tax credits and exemptions. For instance, AGI influences the amount of money you can claim for the Child Tax Credit.
Your AGI is equivalent to your gross income, minus certain tax-deductible expenses, including:
- Certain business expenses for performing craftsmen, reservists, and fee-premise government authorities
- Educator expenses
- Half of any self-employment taxes
- Health care coverage premiums (assuming that you're self-employed)
- Wellbeing Savings Account (HSA) contributions
- Moving expenses for individuals from the armed powers moving due to active obligation
- Punishments on early withdrawal of savings
- Retirement plan contributions (counting IRAs and self-employed retirement plan contributions)
- Student loan interest
You can crunch the numbers to figure out your AGI. Or then again you can find it on line 11 of Form 1040.
Add Back Certain Deductions
To track down 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 an organization
- Passive income or misfortune
- Rental losses
- The exclusion for adoption expenses
Features
- You'll need to crunch a numbers to track down your MAGI, however tax planning software makes this work simple.
- Modified adjusted gross income changes the AGI for certain tax deductions and credits.
- MAGI can change your qualification for certain programs like qualified retirement account contributions.
FAQ
Will MAGI and AGI Be the Same?
Indeed, MAGI and AGI can be something similar. For some individuals, the rundown of deductions that need to be added back to AGI to compute MAGI won't be significant. For example, the people who earned no foreign income would have no great explanation to utilize that deduction and would have none of those earnings to add back to their AGI.
What Purpose Does MAGI Serve?
The IRS utilizes MAGI to determine whether you meet all requirements for certain tax programs and benefits. For example, it assists with determining the permitted amount of your Roth IRA contributions. Realizing your MAGI can likewise assist you with abstaining from facing tax punishments on the grounds that over-adding to these programs and others like them can trigger interest payments and fines. Your MAGI can likewise determine qualification for certain government programs, for example, the financed insurance plans accessible on the Health Insurance Marketplace.
How Do I Calculate Modified Adjusted Gross Income?
It is moderately clear to Calculate your MAGI. To do as such, compute your adjusted gross income (AGI) and afterward add back any of the deductions determined by the Internal Revenue Service that apply to your situation. Instances of these deductions incorporate income from foreign sources, interest from certain savings bonds, and expenses connected with taking on a child. Since MAGI includes adding back these deductions, MAGI will continuously be greater than or equivalent to AGI. To ascertain your MAGI:- Add up your gross income from all sources.- Check the rundown of "changes" to your gross income and take away those for which you qualify from your gross income. The rundown is on the 1040 form under Schedule 1.- The subsequent number is your AGI.- Add back any deductions for which you qualify; these can incorporate student loan interest and individual retirement account contributions.- The subsequent number is your MAGI.
