Modified Adjusted Gross Income (MAGI) determines eligibility and phase-out thresholds for key tax credits by acting as the income benchmark for benefit calculations. Here’s how it impacts specific credits:
1. Premium Tax Credits (Health Insurance Subsidies)
MAGI is used to determine eligibility for Affordable Care Act premium tax credits. To qualify:
- Income must fall between 100%-400% of the federal poverty line (based on household size)
- Temporary expansion (2021-2022) allowed those above 400% to qualify under the American Rescue Plan, but standard rules now apply.
2. Child Tax Credit (CTC)
MAGI dictates the maximum credit amount:
- Full credit for MAGI below $200,000 (single) or $400,000 (joint filers)
- Phase-out reduces the credit by $50 per $1,000 of MAGI above these thresholds.
3. Education Tax Credits
MAGI determines eligibility for:
- American Opportunity Credit: Phases out between $80,000-$90,000 MAGI (single) or $160,000-$180,000 (joint).
- Lifetime Learning Credit: Phases out between $80,000-$90,000 (single) or $160,000-$180,000 (joint).
4. Earned Income Tax Credit
While primarily based on earned income, MAGI can affect eligibility if it exceeds AGI thresholds in certain cases (e.g., investment income limits).
Key Determination Factors
MAGI calculations add back specific deductions to AGI, such as:
- Student loan interest
- IRA contributions
- Foreign-earned income exclusions
- Non-taxable Social Security benefits
- Rental losses
Different credits use varying MAGI definitions, so consult IRS guidelines for each benefit.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-magi-impact-my-eligibility-for-tax-credits/
