what is modified adjusted gross income magi 
modified adjusted gross income magi is individual s adjusted gross income agi after taking into account certain allowable deductions and tax penalties magi is an important number to understand since it is used in several different tax concepts investopedia michela buttignolunderstanding modified adjusted gross income magi modified adjusted gross income can be defined as your household s agi after any tax exempt interest income and after factoring in certain tax deductions 1 knowing your magi can help reduce an individual s taxable income to account for your retirement account contributions factor in the eligibility for benefits like the student loan interest deduction and the child tax credit and establish eligibility for income based medicaid coverage or health insurance subsidies the internal revenue service irs uses magi to establish whether you qualify for certain tax benefits magi notably determines you can contribute to a traditional ira no matter how much you earn 2 in addition you can typically deduct the ira contribution amount reducing your taxable income for that tax year however you can t deduct contributions when you file your tax return if your magi exceeds limits set by the irs and you and or your spouse have a retirement plan at work 3magi and its usesyour magi is an important figure not only for understanding your taxable income but also for qualifying for certain tax credits or deductions several such credits and deductions have thresholds that look at your magi not your unadjusted gross income magis above those thresholds will see those credits or deductions phase out or disappear magi is also used to determine eligibility for healthcare waivers and incentives under the affordable care act aca for states health insurance marketplaces it is also used as a threshold for qualifying for state medicaid programs 4magi is also used to determine your eligibility to contribute to a roth ira roth accounts use after tax dollars and grow tax exempt unlike traditional retirement accounts that are instead tax deferred 2to contribute to a roth ira your magi must be below the limits specified by the irs if you re within the income threshold the actual amount you can contribute is also determined by your magi your contributions are phased out if your magi exceeds the allowed limits here s a rundown of roth ira income limits for 2023 and 2024 67you have to remove the excess contributions if you contribute more than you re allowed otherwise you ll face a tax penalty excess contributions are taxed at a rate of 6 per year for as long as the extra amount remains in your ira 8your magi and whether you and your spouse have retirement plans at work determine whether you can deduct traditional ira contributions if neither spouse is covered by a plan at work then you can take the full deduction up to the amount of your contribution limit however if either spouse has a plan at work then your deduction may be limited 3here s a rundown of traditional ira income limits for 2023 910tax laws are complicated and change periodically if you need help figuring out your magi or if you have any questions about ira contribution and income limits contact a trusted tax professional many deductions are not commonly used so your magi and agi could be similar or identical calculating your magithere are several different ways to calculate magi based on how magi is to be used in the broadest sense determining your magi is a three step process additional ways to calculate magi for more specific reasons are in the subsequent section in most cases magi is calculated in three steps your gross income includes everything you earned during the year from there are two scenarios in which alimony payments are not considered gross income the first is if your divorce agreement was executed after 2018 the second is if your divorce agreement was executed before 2019 but later modified to expressly state that such payments are not deductible for the payer 14your gross income appears on line 9 of form 1040 15your agi is important because it s the total taxable income calculated before itemized or standard deductions exemptions and credits are taken into account 16 it dictates how you can use various tax credits and exemptions your agi is equal to your gross income minus certain tax deductible expenses including you can do the math to figure out your agi or you can find it on line 11 of form 1040 15to find your magi take your agi and add back various magi calculationsas mentioned earlier magi is used to determine eligibility for certain tax benefits subsidies and assistance programs in a number of different ways the specific calculations can vary depending on the context as magi is used in different scenarios below is a brief list of programs taxes or benefits that may serve for a magi calculation however the magi calculation will vary across each item as you are asked to calculate magi for any tax credit or government program be mindful that you are aware of which magi calculation is required as not all formulas are the same several examples include but are not limited to strategies to minimize magifrom a tax planning and strategy perspective it s best to minimize your magi here are several tips on how to reduce your magi in the eyes of tax agencies 