The IRS determines Modified Adjusted Gross Income (MAGI) by starting with your Adjusted Gross Income (AGI) and then adding back certain deductions that were initially subtracted to reach the AGI. Here’s a step-by-step process:
- Calculate Adjusted Gross Income (AGI):
- Begin with your total gross income from all sources (wages, dividends, capital gains, etc.).
- Subtract certain adjustments such as alimony payments, educator expenses, deductible IRA contributions, and student loan interest to arrive at your AGI.
- Calculate Modified Adjusted Gross Income (MAGI):
- Start with your AGI.
- Add back certain deductions:
- IRA contributions
- Student loan interest
- One-half of self-employment tax
- Foreign earned income exclusion (for certain individuals with income from abroad)
- Qualified education expenses (tuition and fees deductions)
- Passive income or losses (from investments not actively managed by you)
- Rental losses (from rental properties)
- Non-taxable Social Security benefits
- U.S. savings bonds income (from qualifying U.S. savings bonds used for education)
- Adoption expense exclusions
This process allows the IRS to adjust your income to determine eligibility for various tax benefits, credits, and phase-outs. MAGI is used in calculating the Net Investment Income Tax and determining qualification for healthcare subsidies, education credits, and more.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-irs-determine-the-modified-adjusted-gross-income-magi/
