MAGI (Modified Adjusted Gross Income) is a modified version of AGI that is used to determine eligibility for certain tax benefits and credits, such as IRA contributions, student loan interest deduction, and eligibility for certain Affordable Care Act subsidies.
MAGI = AGI + Certain Deductions and Exclusions
AGI (Adjusted Gross Income) is a measure of income used in the United States for federal income tax purposes. It is calculated by subtracting certain deductions from a taxpayer’s total income for the year, and it is used to determine eligibility for certain tax benefits and credits.
AGI = Total Income – Adjustments
Here are the key differences between MAGI and AGI
| Feature | MAGI (Modified Adjusted Gross Income) | AGI (Adjusted Gross Income) |
|---|---|---|
| Definition | MAGI is a modified version of AGI that includes certain deductions and income sources that are excluded from AGI calculation. | AGI is the calculation of an individual’s gross income minus specific deductions such as contributions to an IRA, student loan interest, and certain healthcare expenses. |
| Purpose | MAGI is used to determine eligibility for certain tax benefits and government-subsidized health programs, such as premium tax credits for health insurance purchased through the Health Insurance Marketplace, Medicaid, and the Children’s Health Insurance Program. | AGI is used to calculate taxable income and determine eligibility for certain deductions, such as the deduction for contributions to an IRA, and to determine tax liability. |
| Calculation | The specific items that are added back to calculate MAGI can vary depending on the purpose of the calculation. Generally, deductions such as student loan interest deductions, tuition and fees deductions, and domestic production activities deductions are added back. Certain income sources such as foreign earned income, tax-exempt interest, and some Social Security benefits are also added back. | The specific deductions that are subtracted to calculate AGI include contributions to an IRA, student loan interest, and certain healthcare expenses. Income sources that are included in AGI can include wages, salaries, tips, and taxable interest. The calculation for AGI is the same regardless of the purpose. |