The phrase Modified Adjusted Gross Income (MAGI) is found in numerous places throughout the tax code and IRS publications.
To determine MAGI, one must first understand AGI:
AGI = Total Income - above the line deductions (those you don't have to itemize for)
AGI is always the same no matter which part of the tax code you're looking at. But MAGI is context dependent.
For example, what's the MAGI cutoff for deducting traditional IRA contributions?
Don't assume that your modified AGI is the same as your compensation. Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions.
If you file Form 1040, refigure the amount on the page 1 "adjusted gross income" line without taking into account any of the following amounts.
- IRA deduction.
- Student loan interest deduction.
- Domestic production activities deduction.
- Foreign earned income exclusion.
- Foreign housing exclusion or deduction.
- Exclusion of qualified savings bond interest shown on Form 8815.
- Exclusion of employer-provided adoption benefits shown on Form 8839.
This is your modified AGI.
What about for the Lifetime Learning Credit (LLC)?
MAGI for most people is the amount of AGI, adjusted gross income, shown on your tax return. On Form 1040A, AGI is on line 22 and is the same as MAGI. If you file Form 1040, AGI is on line 38 and you add back the following:
- Foreign earned income exclusion,
- Foreign housing exclusion,
- Foreign housing deduction,
- Income excluded as bona fide residents of American Samoa or of Puerto Rico.
Notice how the IRA, student loan interest, and domestic production activities deductions are allowable under the definition of MAGI for the LLC but not for the traditional IRA.
What about the MAGI for determining your subsidy for the Affordable Care Act?
Worksheet 1-1. Taxpayer's Modified AGI—Line 2a
- Enter your adjusted gross income (AGI)* from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37
- Enter any tax-exempt interest from Form 1040, line 8b; Form 1040A, line 8b; or Form 1040NR, line 9b
- Enter any amounts from Form 2555, lines 45 and 50, and Form 2555-EZ, line 18
- Form 1040 filers: If line 20a is more than line 20b, subtract line 20b from line 20a and enter the result. Form 1040A filers: If line 14a is more than line 14b, subtract line 14b from line 14a and enter the result
- Add lines 1 through 4. Enter here and on Form 8962, line 2a
*If you are filing Form 8814 and the amount on Form 8814, line 4, is more than $1,050, you must enter certain amounts from that form on Worksheet 1-2. See Form 8814 under Line 2b, later.
While I didn't look up what the amounts in lines 3 and 4 are, what's important to note here is that from line 2 of the worksheet, tax exempt interest must be added back to AGI to determine MAGI in this context, unlike the LLC or the traditional IRA contexts.
MAGI Is Context Dependent
I could cite more examples, but I think my point is clear: in general you cannot use in context A the definition of MAGI from context B. If you ever Google MAGI, you must put the context in the search terms to have any hope of getting the correct MAGI.