Modified Adjusted Gross Income

An alternate measure of income used to limit 10 different tax breaks

The topic of this page is the study of modified adjusted gross income. This is a rather curious tax creature, as we shall see, for it is used in different contexts with different meanings.

The acronym for modified adjusted gross income is MAGI. The acronym can be pronounced either like the word magi, as in the wise men from the east, or like the word Maggie, as in the female name.

As the name itself suggests, modified adjusted gross income (MAGI) is a modification of adjusted gross income.

Adjusted gross income is modified in different ways for different purposes. There's no single overall definition of MAGI. Instead, MAGI is defined for each context in which it is used. As a generalization, we find that MAGI is used in calculations to limit, reduce or phase out a particular tax break.

The following list summarizes which deductions, credits, and tax benefits utilize MAGI in their calculations. Further down the page, we'll dig into the specific details. Each section of this page is organized the same way: we define MAGI for each tax break, describe the role or function MAGI plays in that tax break, provide any mathematical details about MAGI-based limitations, and provide links for learning more about that particular tax break.

Tax Breaks that Utilize Modified Adjusted Gross Income:

  • Adoption tax credit & assistance programs
  • American Opportunity tax credit
  • Child tax credit
  • Coverdell education savings accounts
  • Individual retirement accounts tax deduction
  • Lifetime Learning tax credit
  • Mortgage bond subsidy recapture
  • Roth individual retirement account eligibility
  • Savings bonds interest exclusion
  • Student loan interest tax deduction

Adoption Tax Credit & Assistance Programs

When calculating the adoption tax credit, modified adjusted gross income (MAGI) is adjusted gross income

+ Foreign earned income exclusion, housing exclusion and housing deduction

+ Exclusion of income from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

The function of MAGI is to limit the amount of adoption-related expenses eligible for the tax credit or tax-free reimbursement from an employer assistance program.

MAGI shows up on line 7 of Form 8839. In that calculation, MAGI functions to limit the amount of the adoption credit based on a person's income. If a person's income is over certain MAGI thresholds, the amount of adoption-related expenses eligible to be refunded through the adoption tax credit is limited or phased-out (read and study lines 7 through 11 of Form 8839).

MAGI also shows up on line 23 of Form 8839. There, MAGI is used to limit the amount of employer-provided benefits for adoption assistance reimbursement that can be excluded from the federal income tax (read and study lines 23 through 27 of Form 8839). The same MAGI threshold limits used for the adoption credit are also used for employer-provided adoption assistance programs.

In both cases, a number of expenses is limited using a phase out the formula. The phase out formula is a fraction, the numerator of the fraction is MAGI in excess of a threshold amount and the denominator is $40,000. The threshold amounts:

For the year

Threshold:
Phaseout begins at MAGI of

Ceiling:
Phaseout completed at MAGI of

2013

$194,580

$234,579

2014

$197,880

$237,880

 

This fraction for 2013 is:

(MAGI – 194,580) ÷ 40,000

And the fraction for 2014 is:

(MAGI – 197,880) ÷ 40,000

Reference material:

American Opportunity Tax Credit

When calculating the American Opportunity Credit, modified adjusted gross income is adjusted gross income

+ Foreign earned income exclusion, housing exclusion and housing deduction

+ Exclusion of income from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

Modified adjusted gross income (MAGI) is calculated using Worksheet 2-1 in Publication 970.

The function of MAGI when concerning the American Opportunity tax credit is to limit the amount of the tax credit itself. MAGI shows up on line 3 of Form 8863. If a person's income is over certain MAGI thresholds, the amount of the American Opportunity credit is limited or phased-out by multiplying the tentative tax credit amount by a fraction.

The numerator of the fraction is a threshold amount minus MAGI, and the denominator of the fraction is either $10,000 or $20,000 for married couples filing jointly. The threshold amounts are:

For the years 2011, 2012, 2013, and 2014

Filing status

Threshold:
Phaseout begins at MAGI of

Ceiling:
Phaseout completed at MAGI of

Single, Head of Household or Qualifying Widow(er)

$80,000

$90,000

Married Filing Jointly

$160,000

$180,000

Note: people who choose the married filing separately status are not eligible for the American Opportunity credit.

This fraction for 2011, 2012, 2013, and 2014 is:

(Ceiling amount – MAGI) ÷ 10,000 (or 20,000 for joint filers)

This fraction is described in Publication 970, chapter 2.

Reference material:

Child Tax Credit

Modified adjusted gross income for the child tax credit is adjusted gross income

+ Foreign earned income exclusion, housing exclusion and housing deduction

+ Exclusion of income from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

The function of modified adjusted gross income (MAGI) is to limit the amount of the child tax credit a person can take. MAGI shows up on lines 3 and 4 of the Child Tax Credit Worksheet in Publication 972. If a person's MAGI is over a threshold amount, the amount of the child tax credit is reduced by $50 for each $1,000 (or a portion of $1,000) by which MAGI exceeds the threshold amount. The threshold amounts are:

Filing status

Threshold begins at MAGI of

Married filing jointly

$110,000

Single, head of household or qualifying widow(er)

$75,000

Married filing separately

$55,000

 

Based on the Child Tax Credit Worksheet, the phase-out limitation can be described as follows:

  • Calculate MAGI
  • Subtract the relevant threshold amount
  • If a negative number, the phaseout does not apply.
  • If a positive number, round this number up to the next multiple of $1,000
  • Multiply this rounded up number by 5%.
  • This is the amount by which the tentative child tax credit is reduced.

Reference material:

Coverdell Education Savings Accounts

In the context of Coverdell Education Savings accounts, modified adjusted gross income is adjusted gross income

+ Foreign earned income exclusion, housing exclusion and housing deduction

+ Exclusion of income from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

MAGI limits the amount that a person can contribute to another person's Coverdell Education Savings Account. MAGI is calculated using Worksheet 7-1, MAGI for a Coverdell ESA, found in Publication 970. If MAGI is over a certain threshold, the amount that a person can contribute to a Coverdell Education Savings Account is reduced or phased-out. The threshold amounts are:

Filing status:

Threshold begins at MAGI of:

Denominator amount:

Married filing jointly

$190,000

$30,000

Any other filing status

$95,000

$15,000

The reduction amount can be represented as a fraction. In Publication 970, the IRS describes this fraction, "The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). Subtract the result from $2,000. This is the amount you can contribute for each beneficiary." The fraction would look like this:

General formula: (MAGI – threshold amount) ÷ denominator amount

For joint filers: (MAGI – 190,000) ÷ 30,000

For persons with another filing status: (MAGI – 95,000) ÷ 15,000

This fraction and the reduction amount are calculated using in Worksheet 7-2, Coverdell ESA Contribution Limit, in Publication 970.

Reference material:

Individual Retirement Account Tax Deduction

Modified adjusted gross income is adjusted gross income figured without the IRA deduction, after including any taxable Social Security benefits, after applying the passive activity loss limitations to passive income, and the following modifications:

+ Exclusion for savings bond interest

+ Adoption assistance excluded from income

+ Deduction for domestic production activities

+ Deduction for interest paid on student loans

+ Deduction for tuition and fees

+ Foreign earned income exclusion, housing exclusion and housing deduction.

MAGI limits the amount that a person can deduct as a contribution to a traditional individual retirement account (IRA) when a person is covered by a retirement plan through an employer. MAGI is calculated using Worksheet 1-1, Figuring Your Modified AGI, found in Publication 590. If MAGI is over a certain threshold, the amount of contributions that a person can deduct as a traditional IRA is reduced or phased-out. The threshold amounts vary by year and by filing status:

Year: 2014

Threshold:
Phaseout begins at MAGI of

Ceiling:
Phaseout completed at MAGI of

Denominator amount

Married filing jointly and both spouses are covered by an retirement plan at work

96,000

116,00

20,000

Married filing jointly and only one spouse is covered by an retirement plan at work

181,000

191,000

10,000

Qualifying Widow or Widower

96,000

116,00

20,000

Single or Head of Household

60,000

70,000

10,000

Married Filing Separately  (and see note below)

-0-

10,000

10,000

Year: 2013

Married filing jointly and both spouses are covered by an retirement plan at work

95,000

115,000

20,000

Married filing jointly and only one spouse is covered by an retirement plan at work

178,000

188,000

10,000

Qualifying Widow or Widower

95,000

115,000

20,000

Single or Head of Household

59,000

69,000

10,000

Married Filing Separately  (and see note below)

-0-

10,000

10,000

Note: If a person uses the married filing separately status and the person did not live with his or her spouse at any time during the year, then that person can use the threshold amount for Single persons when calculating the amount that can be deducted for an IRA.

The reduction amount can be represented as a fraction:

(MAGI – threshold amount) ÷ Denominator amount

This fraction is multiplied against the IRA contribution limit for the year, and the result is rounded down to the next lowest multiple of ten dollars. If the result is less than $200 and more than zero, the result remains set at $200 until the calculation reaches a zero result. The reduction amount is calculated using Worksheet 1-2 from Publication 590. However, if a person received Social Security benefits, they may need to calculate their MAGI and reduction amount using Appendix B, Worksheets for Social Security Recipients Who Contribute to a Traditional IRA, found in Publication 590.

Reference material:

  • Publication 590, Individual Retirement Arrangements (pdf)
  • Internal Revenue Code section 219
  • IR-2013-86 (for 2014 phase out amounts)
  • IR-2012-77 (for 2013 phase out amounts)

Lifetime Learning Tax Credit

Modified adjusted gross income, in the context of the lifetime learning credit, is adjusted gross income with the following modifications:

+ Foreign earned income exclusion, housing exclusion and housing deduction

+ Exclusion of income from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

Modified adjusted gross income (MAGI) for the lifetime learning credit can be calculated using Worksheet 3-1 in Publication 970.

MAGI reduces the amount of the lifetime learning tax credit. If a person's MAGI is over a certain threshold, the amount of the lifetime learning credit is reduced or phased-out. How much the credit is reduced varies based on MAGI and filing status. The threshold amounts vary each year:

Year: 2014

Threshold:
Phaseout begins at MAGI of

Ceiling:
Phaseout completed at MAGI of

Denominator amount

Married Filing Jointly

108,000

128,000

20,000

Single or Head of Household or Qualifying Widow(er)

54,000

64,000

10,000

Year: 2013

Married Filing Jointly

107,000

127,000

20,000

Single or Head of Household or Qualifying Widow(er)

53,000

63,000

10,000

 

The reduction amount is calculated on Form 8863, lines 10 through 18. The reduction amount can be represented as a fraction:

(Ceiling amount – MAGI) ÷ Denominator amount

This fraction is then multiplied by the tentative credit amount to find the amount of the lifetime learning credit after the reduction. The IRS provides an example of how this math works on page 26 of Publication 970.

 Reference material:

Mortgage bond subsidy recapture

Modified adjusted gross income, in the context of the mortgage bond subsidy recapture, is adjusted gross income with the following modifications:

+ Tax-exempt interest income

- Gain from the disposition of a residence.

MAGI is one of the several factors that help calculate the federal mortgage subsidy recapture. MAGI appears on line 15 of Form 8828.

Reference material:

Roth Individual Retirement Account Eligibility

Modified adjusted gross income, in the context of Roth IRAs, is adjusted gross income with the following modifications:

- Income from a Roth conversion

+ Deduction for Traditional IRA contribution

+ Exclusion for savings bond interest

+ Adoption assistance excluded from income

+ Deduction for domestic production activities

+ Deduction for interest paid on student loans

+ Deduction for tuition and fees

+ Foreign earned income exclusion, housing exclusion and housing deduction.

MAGI is used to determine whether or not, and how much a person can contribute his/her savings to a Roth Individual Retirement Account (IRA). If a person's MAGI is over a certain threshold, the amount that person can contribute to a Roth IRA is reduced or phased-out. The threshold amounts vary by year and by filing status:

Year: 2014

Threshold:
Phaseout begins at MAGI of

Ceiling:
Phaseout completed at MAGI of

Denominator amount

Married Filing Jointly or Qualifying Widow(er)

181,000

191,000

20,000

Single or Head of Household

114,000

129,000

15,000

Married Filing Separately  (and see note below)

-0-

10,000

10,000

Year: 2013

Married Filing Jointly or Qualifying Widow(er)

178,000

188,000

10,000

Single or Head of Household

112,000

127,000

15,000

Married Filing Separately  (and see note below)

-0-

10,000

10,000

Note: If a person uses the married filing separately status and the person did not live with his or her spouse at any time during the year, then that person can use the threshold amount for Single persons when calculating the amount that can be contributed to a Roth IRA.

The amount by which Roth IRA contributions are reduced when MAGI exceeds the threshold can be represented as a fraction:

(MAGI – threshold amount) ÷ Denominator amount

This fraction is then multiplied by the maximum Roth IRA contribution limit for the year (including any catch-up contributions) to find the reduction amount. The reduction amount is then subtracted from the maximum Roth IRA contribution limit for the year (including any catch-up contributions), and the remainder is rounded up to the nearest multiple of ten dollars. If the remainder is more than zero and less than $200, the result is rounded to $200. This amount is calculated using Worksheet 2-2 in Publication 590.

Reference material:

  • Internal Revenue Code section 408A
  • Publication 590, Individual Retirement Arrangements (pdf)
  • IR-2013-86 (for 2014 phase out amounts)
  • IR-2012-77 (for 2013 phase out amounts)

Savings bonds interest exclusion

Modified adjusted gross income, in the context of the savings bond interest exclsion, is adjusted gross income figured after including any taxable Social Security benefits, after applying the passive activity loss limitations to passive income, after including the IRA deduction, and the following modifications:

+ Adoption assistance excluded from income

+ Deduction for domestic production activities

+ Deduction for interest paid on student loans

+ Deduction for tuition and fees

+ Foreign earned income exclusion, housing exclusion and housing deduction

+ Exclusion of income from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

Modified adjusted gross income (MAGI) is calculated using the Line 9 Worksheet found in the Instructions for Form 8815.

MAGI limits or reduces the amount of savings bond interest that can be excluded from tax based on a person's income. If a person's MAGI is over a certain threshold, the amount of savings bond interest that a person can exclude from the tax is reduced or phased-out. The threshold amounts vary by year and by filing status:

Year: 2014

Threshold: Phaseout begins at MAGI of

Ceiling: Phaseout completed at MAGI of

Denominator amount

Married Filing Jointly or Qualifying Widow(er)

113,950

143,950

30,000

Single or Head of Household

76,000

91,000

15,000

Year: 2013

Married Filing Jointly or Qualifying Widow(er)

112,050

142,050

30,000

Single or Head of Household

74,700

89,700

15,000

Note: Persons who use the married filing separately status are not eligible to exclude savings bond interest.

The amount by which the exclusion is reduced or phased out can be represented by a fraction:

(MAGI – threshold amount) ÷ Denominator amount

This ratio (rounded to at least three decimal places) is then multiplied by the tentative savings bond exclusion amount (line 8 on Form 8815) to find the amount of savings bond interest that can be excluded from income taxes. (This fraction is based on lines 9 through 12 of Form 8815.)

Reference material:

Student loan interest tax deduction

Modified adjusted gross income, in the context of the deduction for student loan interest, is adjusted gross income with the following modifications:

- Deduction for student loan interest

- Deduction for tuition and fees

- Deduction for domestic production activities

+ Foreign earned income exclusion, housing exclusion and housing deduction

+ Exclusion of income from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

Modified adjusted gross income (MAGI) is calculated using Worksheet 4-1 found in Publication 970.

MAGi limits the amount of student loan interest that a person can deduct. If a person's MAGI is over a certain threshold, the amount of student loan interest that person can deduct is reduced or phased-out. The threshold amounts vary by year and by filing status:

Year: 2014

Threshold: Phaseout begins at MAGI of

Ceiling: Phaseout completed at MAGI of

Denominator amount

Married Filing Jointly

130,000

160,000

30,000

Single or Head of Household or Qualifying Widow(er)

65,000

80,000

15,000

Year: 2013

Married Filing Jointly

125,000

155,000

30,000

Single or Head of Household or Qualifying Widow(er)

60,000

75,000

15,000

Note: Persons who use the married filing separately status are not eligible to deduct student loan interest.

The amount by which the maximum student loan interest deduction is reduced can be represented as a fraction:

(MAGI – threshold amount) ÷ Denominator amount

This fraction is multiplied by the tentative interest deduction to find the reduction amount. The result is then subtracted from the tentative interest deduction (before the phaseout) to arrive at the amount of student loan interest that can be deducted. (This fraction is based on the discussion found in Publication 970, pages 31-32, and the examples provided there.)

The student loan interest deduction can be calculated using either Worksheet 4-1 found in Publication 970. However, if a person needs to file Forms 2555, 2555-EZ or 4563, then the student loan interest deduction can be calculated using the Student Loan Interest Deduction Worksheet – Line 33 found in the Instructions for Form 1040

Reference material: