How to Calculate Your Modified Adjusted Gross Income

The IRS uses your MAGI to determine whether you can contribute to an IRA

Busy accountant. Credit: Chuck Savage / Getty Images

Your modified adjusted gross income (MAGI) determines your eligibility for important tax benefits, including whether you can deduct contributions to an individual retirement account (IRA), contribute to a Roth IRA, or convert a traditional IRA to a Roth IRA.

Your modified adjusted gross income is not the same thing as your total income, or as your adjusted gross income. Most people are more familiar with their adjusted gross income than they are with their MAGI.

But although your adjusted gross income and your modified adjusted gross income are likely to be fairly close in value to one another, it's important to understand the difference between them. Here are the details, plus how to calculate your MAGI.

Finding Your Adjusted Gross Income

Your adjusted gross income (AGI) is the total amount of income you make in a year, minus certain deductible expenses. The AGI is found on line 37 of IRS Form 1040, on line 21 of IRS Form 1040A, and on line 4 of IRS Form 1040EZ.

Adjusted gross income includes all your income, including:

  • wages
  • investment income
  • business income
  • retirement income
  • alimony
  • rental income, and
  • farm income

The total amount of income then is "adjusted" by subtracting tax-deductible expenses. These may include:

  • educator expenses
  • health savings account (HSA) contributions
  • health insurance expenses (if you're self-employed)
  • IRA deductions
  • alimony, and
  • student loan interest

    The Internal Revenue Service uses your adjusted gross income as a starting point to calculate your total income tax. It also uses it to determine if you're eligible for a variety of credits and exemptions, including charitable deductions, deductions for adoption expenses, dependent tax credits, and the earned income credit.

    Therefore, it's generally in your best interests to lower your AGI as much as possible, given your earnings. Therefore, you should find as many tax-deductible expenses as possible to subtract from the total.

    There are two items you don't need to add to your AGI:

    • contributions to employer-sponsored plans, like 401(k)s, and
    • taxable income generated by converting to a Roth IRA

    How to Calculate Your MAGI

    You won't find your modified adjusted gross income on your tax return. Fortunately, though, it's easy to calculate.

     

    Start with your adjusted gross income, the figure on the last line of the front of your 1040 or 1040A tax form (line 37 for Form 1040, line 21 for Form 1040A, or line 4 for Form 1040EZ).

    Then find yourself a calculator, and add back:

    • any deductions you took for IRA contributions
    • any deductions you took for student loan interest or tuition
    • half of your self-employment tax
    • passive income or loss
    • excluded foreign income
    • rental losses
    • interest from EE savings bonds used to pay higher education expenses, and
    • employer-paid adoption expenses, and
    • losses from a publicly-traded partnership

    How the IRS Uses Your MAGI

    The most important reason to know your modified adjusted gross income is to determine whether you can make tax-deductible contributions to individual retirement accounts. The IRS also uses the MAGI to determine if you're eligible to take a tax deduction for tuition and fees.

    Since the limits in these situations differ depending on your filing status, you'll need to consult a tax advisor or tally the numbers yourself to see where you stand with your MAGI. 

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