Modified Adjusted Gross Income (MAGI) is a term used in the United States tax system to determine eligibility for certain deductions, credits, and retirement plans. It is calculated by adding specific items to the Adjusted Gross Income (AGI). The IRS uses MAGI to assess an individuals or household's income for various tax benefits.
The main components of MAGI include:
-
Adjusted Gross Income (AGI): This is the total income earned by an individual or household, minus certain adjustments such as IRA and self-employed retirement plan contributions, alimony payments (for divorce agreements prior to 2019), and one-half of any self-employment taxes paid.
-
Exempt or excluded income: Certain types of income, such as tax-exempt interest income, non-taxable Social Security benefits, and untaxed foreign income, are added to the AGI to calculate MAGI.
-
Certain deductions: MAGI takes into account specific tax deductions, which can vary depending on the tax benefit being considered. These deductions may include self-employed health insurance payments and other allowable reductions to income.
MAGI can vary depending on the tax benefit being assessed. It is an important factor in determining eligibility for premium tax credits and other savings for Marketplace health insurance plans, Medicaid, the Children's Health Insurance Program (CHIP), and qualified retirement account contributions.
