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Modified Adjusted Gross Income: What Is MAGI?

Kevin Graham11-minute read
April 06, 2022

It’s important to have a real understanding of your income. There’s the obvious in that it determines the size of your paycheck, and the IRS also bases your taxes on your income. However, not all income is treated the same way and occasionally special rules apply.

One important number to be aware of is modified adjusted gross income (MAGI). We’ll discuss why this number is key along with how you can calculate it.

What Is Modified Adjusted Gross Income (MAGI)?

You may know that adjusted gross income (AGI) is the amount of your income that’s taxable. MAGI adds certain directions and credits back into your income. This number is used to determine if you qualify for certain retirement plans, as well as specific tax deductions and credits.

How Modified Adjusted Gross Income Affects Retirement Plans

MAGI is used to determine a couple of things when it comes to retirement plans that we’ll get into in more depth below.

  • Whether you can contribute to a Roth IRA
  • Whether any traditional IRA contributions that you make are tax deductible

MAGI And Roth IRA Contributions

MAGI impacts both whether you can contribute to a Roth IRA and the amount you can contribute. There are threshold limits that vary from year to year. Here are tables covering eligibility for Roth IRA contributions in 2019 and 2020 tax years.

IRA Contribution Limits by Filing Status And MAGI For the 2019 Tax Year

Filing Status

MAGI

Contribution Limit

Married filing jointly or qualified widow or widower

Less than $193,000

Up to the overall limit, which is the lesser of $6,000 per year ($7,000 if 50 or older) or your total taxable compensation

Greater than $193,000 but less than $203,000

Some lesser amount

$203,000 or greater

$0

Married filing separately (and you lived with your spouse at some point during the previous tax year)

Less than $10,000

Some lesser amount

$10,000 or more

$0

Single, head of household or married filing separately (and didn’t live with your spouse during the previous tax year)

Less than $122,000

Up to the limit

 $122,000 or more but less than $137,000

Some lesser amount

$137,000 or more

$0

Here’s how the thresholds stack up for the 2020 tax year.

IRA Contribution Limits by Filing Status And MAGI For the 2020 Tax Year

Filing Status

MAGI

Contribution Limit

Married filing jointly or qualified widow or widower

Less than $196,000

Up to the overall limit, which is the lesser of $6,000 per year ($7,000 if 50 or older) or your total taxable compensation

$196,000 or more, but less than $206,000

Some lesser amount

$206,000 or more

$0

Married filing separately (and you lived with your spouse at some point during the previous tax year)

Less than $10,000

Some lesser amount

$10,000 or more

$0

Single, head of household or married filing separately (and didn’t live with your spouse during the previous tax year)

Less than $124,000

Up to the limit

More than $124,000, but less than $139,000

Some lesser amount

$139,000 or more

$0

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Once you know the thresholds, the question becomes how to calculate your contribution limit if you happen to be in the middle. Let’s cover that real quick. For the purposes of this example, we’ll be using numbers from a 2019 return, but the rules for 2020 are the same with slightly different numbers.

  1. Find your modified AGI. We’ll discuss calculating this later.
  2. Subtract the following amounts based on your filing status:
    1. $193,000 if filing jointly or as a qualified widow or widower
    2. You don’t subtract anything if you were married and filing a separate return and lived with your spouse at any point during the 2019 tax year.
    3. $122,000 for everyone else
  3. Divide the result of the second step by $15,000 ($10,000 if you file a joint return, as a qualifying widower or married individuals filing separately who lived with their spouse at any point during the year.
  4. Multiply the maximum contribution limit before any reduction by the quotient we just came up with in step 3.
  5. Subtract the product of step 4 from the maximum contribution amount and this is how much you can contribute to a Roth IRA.

That’s a bit complex so let’s run through an example.

Mary and John Smith, 45 and 43, file a joint return with a combined MAGI of $200,000.

  1. The MAGI is $200,000.
  2. Because they file jointly, subtract $193,000 (=$7,000).
  3. Because they file jointly, divide $7,000 by $10,000 (=0.7).
  4. Multiply this result by the maximum contribution amount (for the sake of simplicity, $6,000 (=$4,200).
  5. Subtract the results of step 4 from the maximum limit to get your limit (in this case, $1,800).

MAGI And Traditional IRA Contribution Deductions

You may be allowed to deduct your contributions to a traditional IRA. How much can be deducted and whether you can do so is dependent on your MAGI, filing status and whether you and your spouse have a retirement plan through work. If neither you nor your spouse have your retirement plan through work, your full amount of contributions up to your personal limit is always deductible.

One thing to note is that this applies to traditional IRAs. Contributions to Roth IRAs aren’t tax deductible.

The following charts will help you determine whether you can take a deduction of your IRA contributions. We’ll start with 2019 before moving to the 2020 tax year.

You ARE Covered By A Work Retirement Plan For The 2019 Tax Year

Filing Status

MAGI

Is IRA Contribution Tax Deductible?

Single or head of household or married filing separately (and you didn’t live with your spouse during the 2019 tax year)

$64,000 or less

A full deduction up to the contribution limit, which is the lesser of your taxable compensation or $6,000 ($7,000 over age 50)

More than $64,000 but less than $74,000

You can take a partial deduction.

$74,000 or more

You can’t deduct traditional IRA contributions.

Married filing jointly or qualifying widow or widower

$103,000 or less

Full deduction up to your limit

More than $103,000 but less than $123,000

You can take a partial deduction.

More than $123,000

You can’t deduct traditional IRA contributions.

Married filing separately

Less than $10,000

You can take a partial deduction.

More than $10,000

You can’t deduct traditional IRA contributions.

You AREN’T Covered By A Work Retirement Plan For The 2019 Tax Year

Filing Status

MAGI

Is IRA Contribution Tax Deductible?

Single, head of household, qualifying widow or married filing separately (and you haven’t lived with your spouse during the 2019 tax year)

Any income level

A full deduction up to the contribution limit, which is the lesser of your taxable compensation or $6,000 ($7,000 over age 50)

Married and filing either jointly or separately when your spouse isn’t covered by a work-based retirement plan

Any income level

A full deduction up to your contribution limit

Married filing jointly and your spouse is covered by a work-based retirement plan

$193,000 or less

A full deduction up to your limit

More than $193,000 but less than $203,000

A partial deduction

More than $203,000

You can’t deduct traditional IRA contributions.

Married filing separately when your spouse is covered by a work-based retirement plan

Less than $10,000

A partial deduction

$10,000 or more

You can’t deduct traditional IRA contributions.

Now here are the guidelines for 2020 as relates to IRA contributions and MAGI.

You ARE Covered By A Work Retirement Plan For The 2020 Tax Year

Filing Status

MAGI

Is IRA Contribution Tax Deductible?

Single, head of household or married filing separately (if you didn’t live with your spouse in 2020)

$65,000 or less

A full deduction up to the contribution limit, which is the lesser of your taxable compensation or $6,000 ($7,000 over age 50)

More than $65,000 but less than $75,000

A partial deduction

$75,000 or more

You can’t deduct traditional IRA contributions.

Married filing jointly or qualifying widow or widower

$104,000 or less

You can take a full deduction up to your limit.

$104,000 but less than 124,000

A partial deduction

$124,000 or more

You can’t deduct traditional IRA contributions.

Married filing separately (and you live with your spouse)

Less than $10,000

A partial deduction

More than $10,000

No deduction

You AREN’T Covered By A Work Retirement Plan For The 2020 Tax Year

Filing Status

MAGI

Is IRA Contribution Tax Deductible?

Single (or married filing separately and you didn’t live with your spouse and 2020), qualifying widow or widower or head of household

Any amount

A full deduction up to the contribution limit, which is the lesser of your taxable compensation or $6,000 ($7,000 over age 50)

Married filing jointly or separately when living with your spouse who isn’t covered by a work-based retirement plan

Any amount

A full deduction

Married filing jointly with a spouse covered by a work-based retirement plan

$196,000 or less

A full deduction

More than $196,000 but less than $206,000

A partial deduction

More than $206,000

You can’t deduct traditional IRA contributions.

Married filing separately with a spouse who is covered by a work-based retirement plan (and you lived with them in 2020)

Less than $10,000

A partial deduction

$10,000 or more

You can’t deduct traditional IRA contributions.

The question again is how you calculate a partial deduction, and for that you have to dig deep on the tax law. There’s a worksheet to follow, but things get far more complicated than we would like to touch on in the scope of this post. Take a look at the IRS guidance, but feel free to rely on the advice of a tax-preparation professional or your tax software of choice.

How Modified Adjusted Gross Income Affects Tax Deductions And Credits

In addition to being important for figuring out Roth IRA contribution eligibility in the deductibility of contributions to traditional IRAs, MAGI is used for determining qualification for various tax credits and deductions including the following:

  • Net Investment Income Tax: Net investment income is derived from interest, dividends, certain annuities, royalties and rents. It’s also considered net investment income if you got it from a passive activity like selling property or trading in financial instruments (think stocks, bonds or mutual funds, etc.) or commodities (such as oil). This is taxed at a rate of the lesser of 3.8% of net investment income or 3.8% of MAGI above certain thresholds.
  • Premium Tax Credit: This is a tax credit designed to help cover the premiums of health insurance purchased through the Health Insurance Marketplace by low-to-moderate income individuals and families.
  • Education Credits: You can get an education tax credit for qualified tuition and related expenses. However, there’s an income phaseout that’s based on MAGI.
  • Child Tax Credit: Parents can get a tax credit of up to $2,000 for each qualifying child under the age of 17. A portion of this is also refundable in many circumstances, which could allow you to receive a refund even if you don’t owe taxes. There’s an income phaseout based on MAGI for those earning over $200,000 ($400,000 if you’re married filing jointly).

This is just a sampling of numerous federal tax credits and deductions.

How To Calculate Modified Adjusted Gross Income

Because it’s a rule of life that taxes have to be complicated, you can’t find your MAGI anywhere on your tax return. It has to be calculated. It’s a three-step process:

  1. Find your gross yearly income
  2. Find your AGI
  3. Add back certain deductions to find your MAGI

Step 1: Find Your Gross Yearly Income

Gross income is defined by the IRS as income for services, also including fees, commissions, fringe benefits and other items like these. Basically, gross income is any taxable income before the taxes are taken out. This can be found on line 7b of your 2019 1040.

Your gross yearly income includes your wages from your job or business as well as the following. Adding all this up will give you your gross yearly income.

  • Taxable Interest: This could be interest on money in the bank. You might get a 1099-INT if you have to pay this interest.
  • Taxable Dividend Income: If you have to pay taxes on dividend payouts from investments, you’ll get a 1099-DIV
  • Taxes On Retirement Benefits: This includes the taxable amounts on any IRA distributions, pensions and annuities and Social Security benefits.
  • Capital Gain: If you profit from the sale of a home, material possession or investment, among other things, you’ll have a capital gain you might have to pay taxes on.
  • Other Income: This is a broad category that includes any income you earn from anything else. It includes things like alimony and income taxes from a business. This is found on Schedule 1, line 9.

Step 2: Find Your AGI

AGI is adjusted gross income. It’s gross income’s minus certain adjustments. It’s important because this is the income that your taxes are based on.

Your AGI can be found on line 8b of the 2019 1040 tax return. You can also calculate this by subtracting various categories of deduction listed on Schedule 1, the total of which will be on line 22 of that form. Here’s a list of the categories that can be deducted from the total gross income when calculating AGI.

  • Educator Expenses: If you are a qualified educator, you can deduct certain expenses if you get things for your classroom and your students that are used in the course of your teaching.
  • Qualified Business Expenses In Various Fields: If you’re in the military reserves, a performing artist or a fee-basis government official, you can deduct certain expenses enumerated on Form 2106.
  • Health Savings Account: If you’re in a high-deductible health plan and have a health savings account, you can deduct your contributions made to the plan from your AGI. These are on Form 8889.
  • Military Moving Expenses: Members of the armed forces can deduct their moving expenses when they receive a permanent change of station. This is Form 3903.
  • Self-Employment Tax Deduction: You may be able to deduct a portion of your self-employment tax. This will be laid out in Schedule SE.
  • SEP, SIMPLE And Other Qualified Retirement Contributions: This is designed to let those employed in small businesses or the self-employed deduct retirement contributions.
  • Self-employed Health Insurance Deduction: If you paid health insurance premiums for you or your family is a self-employed individual, this is a deduction for you.
  • Alimony:Alimony paid to a former spouse as part of a divorce agreement is deductible.
  • IRA Deduction: Depending on whether you qualify, you may be able to deduct contributions to a traditional IRA. As a reminder, Roth IRA contributions aren’t deductible.
  • Penalties On Early Withdrawal Of Savings: In qualifying situations, you can deduct from your taxes early withdrawal penalties on savings accounts. The penalty would be on Form 1099-INT.
  • Student Loan Interest Deduction: For those paying qualified student loans, you can deduct the lesser of $2,500 or the actual amount of interest paid during the tax year. This does reduce and eventually phaseout based on the level of your MAGI.

Step 3: Add Back Certain Deductions To Find Your MAGI

In order to come up with your MAGI to find out if you qualify for certain deductions and credits, you need to add back in certain deductions that you made when calculating your AGI.

  • Add back any deductions taken for IRA contributions and taxable Social Security payments
  • Student loan interest or tuition deductions
  • Excluded foreign income
  • Half of your self-employment taxes
  • Interest from EE savings bonds used to pay for post-secondary education expenses
  • Publicly traded partnership losses
  • Passive income losses (including rental)
  • Qualified tuition expenses
  • Adoption expense exclusion

It’s common for your MAGI to line up very closely with your AGI.

Key Takeaways

Your MAGI is important in determining your eligibility for many tax credits and deductions. In addition to determining whether you’re eligible to contribute to a Roth IRA, your MAGI also determines whether you can take a deduction for traditional IRA contributions.

In addition to the retirement implications, MAGI also affects whether you qualify for health insurance premium, education and child tax credits among others. It also determines how much you pay for certain taxes like new investment tax. Your MAGI won’t show up on your tax return, but it can be calculated if you first figure out your gross income and AGI.

As always, taxes are complicated. If you have any concerns regarding your personal finance or tax situation, we recommend talking to a financial advisor or tax professional.

If you found this helpful, we recommend checking out some of our other content to learn more about your personal finances.

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Track your credit, manage your personal finances and get ready to buy a home.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.