Skip to content
Home » What is Modified Adjusted Gross Income (MAGI)?

What is Modified Adjusted Gross Income (MAGI)?

  • Money
What is Modified Adjusted Gross Income (MAGI)?

Coming up is tax season, which may be a little stressful for many. Families delay submitting their taxes in part because they find the process intimidating.

Confusion over the language contributes significantly to this issue. How frequently do you use the terms accelerated depreciation or vested benefits in everyday conversation?

Exactly.

Families may, however, empower themselves and begin experiencing significant financial success by making sure they manage their money responsibly, including paying their taxes.

You can check and ensure you’re utilising tax benefits more effectively if you are more conversant with tax terms.

Your income is one of the most important concepts. Your updated Adjusted Gross Income is one of them (MAGI). Let’s explore this and see how knowing your MAGI might benefit your taxes.

What Exactly is Modified Adjusted Gross Income (MAGI)?

Your MAGI is determined by your adjusted gross income, as you would have guessed from the name. A person’s adjusted gross income is their entire gross income less certain deductions.

IRA contributions, alimony payments, contributions to health savings accounts, and student loan interest are a few examples of these deductions.

Your health insurance premiums and retirement plan contributions may also be used if you work for yourself.

Your adjusted gross income is based on your gross income to descend to a lower level.

In general, your gross income includes all of the money you make in a given year, including your wages from work, profits from any businesses you own, dividends and capital gains from your investments, and distributions from your retirement plan.

You take your AGI and add back any deductions (Part II, “Adjustments to Income”) such your student loan interest, IRA contributions, and eligible tuition expenditures to determine your modified adjusted gross income.

Most people will discover that their AGI and MAGI are equal to one another or extremely near to it, depending on their circumstances.

Hopefully, this has clarified how your MAGI and AGI are determined, but you might still be wondering why your MAGI is such a huge deal when it comes to taxes.

Why Your Modified Adjusted Gross Income Matters

Your modified adjusted gross income is crucial because the IRS uses it to determine whether you are eligible for particular tax benefits.

Your Individual Retirement Account is a significant one (IRA). It can impact whether you are eligible to contribute to a Roth IRA and whether you can deduct any of your traditional IRA contributions.

Many people have a main aim of saving money for retirement, so make sure you’re on top of it!

Read more: Independent contractor health insurance