Think of your adjusted gross income (AGI) as the scoreboard total on Form 1040. However, when you try to deduct a Traditional IRA contribution, contribute to a Roth IRA, or claim certain credits, the IRS asks a different question, i.e., what is modified adjusted gross income (MAGI)?
It’s a key figure that can affect your eligibility for certain tax benefits, retirement account contributions, and even some government programs. But what exactly is MAGI, why does it matter, and how do you calculate it? This comprehensive guide will walk you through everything you need to know about MAGI
What is modified adjusted gross income (MAGI)?
Modified Adjusted Gross Income (MAGI) is a calculation used by the IRS to determine your eligibility for certain tax benefits, credits, deductions and retirement account contributions. It starts with your Adjusted Gross Income (AGI) and then adds back specific deductions or exclusions, which can vary depending on the particular tax benefit or program.
In one line: MAGI = AGI + Selected add-backs
While MAGI is not a line item on your tax return, it is a critical figure for many tax-related decisions.
MAGI is used to:
Assess eligibility for Roth IRA contributions
Determine if you can deduct traditional IRA contributions
Qualify for certain tax credits (like the Child Tax Credit)
Establish eligibility for health insurance subsidies
Understanding your MAGI can help you see which tax benefits you may qualify for and how your income is evaluated for various IRS rules.
How MAGI differs from AGI (Adjusted gross income)
Adjusted gross income (AGI) is your total income from all sources, such as wages, dividends, capital gains, business income, and retirement income, after “above-the-line” deductions. These deductions can include contributions to retirement accounts, student loan interest, and certain business expenses.
Your modified adjusted gross income starts with the same AGI and adds back only the items the IRS specifies for a given rule. You can find your AGI on line 11 of IRS Form 1040.
Key difference between AGI and MAGI:
Key Difference
AGI
MAGI
Deductions and add-backs
Reduces income with allowed deductions.
Restores selected items by adding back certain deductions.
Where you see it
Printed on every tax return; appears as a line item (e.g., line 11 on Form 1040).
Never appears on the tax return; calculated only when a rule requires it.
Purpose
Used to determine taxable income and eligibility for many credits and deductions.
Used by the IRS to set thresholds for benefits, using a broader income measure to test if your resources exceed a limit.
When does the IRS look at MAGI instead of AGI?
Traditional IRA deductions: Your ability to deduct contributions phases out once your MAGI passes the annual limits set in Publication 590-A.
Roth IRA contributions: MAGI determines whether you can contribute new money to a Roth IRA and how much you can contribute.
Premium Tax Credit for marketplace health insurance: Earn too little, and Medicaid may cover you. Whereas if you earn too much, the credit might disappear.
Why does MAGI matter to investors?
Your MAGI may determine whether you can take advantage of certain tax-advantaged accounts or credits. Here’s how it matters across different scenarios:
Roth IRA contribution: Your MAGI determines whether you’re eligible to make full, partial, or no contributions to a Roth IRA in a given tax year.
Traditional IRA deductions. If you (or your spouse) have a workplace plan, the deductible amount phases out once MAGI climbs past the annual ceiling.
Health savings accounts (HSAs) contributions. An HSA is not phased out by MAGI, but each contribution lowers your AGI and, therefore, your MAGI.
Premium tax credit. Many credits, such as the Child Tax Credit, American Opportunity Credit, and Lifetime Learning Credit, use MAGI to determine eligibility and phase-out ranges.
How to calculate MAGI
If you are wondering “how do I calculate MAGI” or want a quick MAGI calculation worksheet, work through the three-step method below.
1. Find your total (gross) income
Add every dollar (that is taxable) you earned for the year, including wages, dividends, bank interest, freelance income, rental profits, and other taxable amounts that flow onto Form 1040. This is the figure the IRS refers to as gross income.
2. Calculate your adjusted gross income (AGI)
Subtract “above-the-line” deductions from your gross income to get your AGI. Common deductions may include IRA and 401(k) contributions, HSA contributions, student loan interest, certain business expenses, and half of your self-employment tax, among others. The result is your AGI, which appears on Form 1040, line 11.
3. Add back selected deductions to get MAGI
For IRAs (and other income-based rules), the IRS instructs you to add back only the items in the table below. Once these amounts are restored, you have your MAGI, i.e., the number used for every “MAGI Roth IRA limit” or deduction phase-out you see quoted online.
Your MAGI decides whether you can contribute to a Roth IRA and how much.
Roth IRA contribution limits
Filing status
Full contribution if MAGI is:
Partial contribution
No contribution if MAGI is:
Single/Head of household
Less than $150,000
$150,000–$165,000
$165,000 or more
Married filing jointly
Less than $236,000
$236,000–$246,000
$246,000 or more
Married filing separately*
Less than $10,000
N/A
$10,000 or more
*If you lived with your spouse at any time during the year.
The maximum contribution for 2025 is $7,000 (or $8,000 if you’re age 50 or older)
2. Traditional IRA deduction limits
If you or your spouse is covered by a workplace plan, MAGI determines how much of your Traditional IRA contribution you can deduct. The limits are:
Traditional IRA deduction limits
Filing status
Full deduction if MAGI is:
Partial deduction
No deduction if MAGI is:
Single/Head of household
$79,000 or less
$79,000–$89,000
$89,000 or more
Married filing jointly
$126,000 or less
$126,000–$146,000
$146,000 or more
Married filing separately
Less than $10,000
N/A
$10,000 or more
If neither spouse is covered by a plan at work, the deduction is generally allowed regardless of MAGI.
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If you file as single, your MAGI considers only your own earnings, deductions, and required add-backs. Once you are married and start filing jointly, both spouses’ figures merge into one household MAGI.
The IRS evaluates that combined number against the joint phase-out ranges it publishes each year. This creates a significant difference in the thresholds for credits or IRA limits compared to those that apply to single filers.
2. MAGI considerations for dependents
When you list a child or student as a dependent, the IRS uses your MAGI, not theirs, to see if you qualify for benefits like the American Opportunity Tax Credit. A dependent may still determine their own MAGI for items on their return, say, deciding whether summer job earnings can go into a small Roth IRA, but that calculation affects only their personal rules, not yours.
3. MAGI for small business owners or self-employed individuals
If you run your own business, say, as a sole proprietor (Schedule C) or an S-Corp owner, you can subtract items like SEP-IRA or Solo 401(k) contributions and your health premiums.
Those deductions push your AGI down, which also lowers the starting point for MAGI. Later in the MAGI worksheet, half of the self-employment tax you paid is added back, so that part of the tax circles back into your final MAGI figure.
Conclusion
Your Modified Adjusted Gross Income may not be printed on your tax return, but it has a significant impact on your financial eligibility across several areas, especially if you’re contributing to a Roth IRA, deducting a Traditional IRA, or accessing education credits.
Here’s a quick recap of what you’ve learned:
MAGI = AGI + IRS – defined add-backs
It’s used to determine your eligibility for tax benefits, not your tax bill
MAGI affects how much you can contribute to or deduct from IRAs
It varies depending on your filing status, income, and deductions
By understanding how MAGI is calculated, you can make informed decisions about how you approach your retirement planning and tax strategy.
