What does modified adjusted gross income mean?

The tax man has several ways to measure your income and modified adjusted gross income is one of them. Commonly mistaken with adjusted gross income, modified adjusted gross income is different but somewhat similar to it. 

The main use of modified adjusted gross income is to figure out eligibility for certain deductions like the IRA deduction. When you contribute to a qualified IRA plan, you get a deduction for it. For example, if you put $5,000 on a traditional IRA, you get a deduction for it. There is no deduction for Roth IRAs because they are funded with after-tax dollars, so you don’t pay taxes when you withdraw money from it. That’s a vastly different topic on its own. Learn more about how IRAs and taxes work.

The modified adjusted gross income of a taxpayer is figured out by filling out Schedule 1, with the same form as calculating adjusted gross income. The difference is that you add back certain adjustments claimed on Schedule 1. Calculate your adjusted gross income and add back the following deductions.

Adjustments to add back when calculating MAGI

  • IRA contributions deduction
  • Taxable Social Security payments
  • Excluded foreign income
  • Passive income or loss
  • Rental loss
  • Exclusion for adoption expenses
  • Interests from Series EE bonds used for paying higher education expenses
  • Partnership losses

You can also calculate modified adjusted gross income first, then your AGI. Calculate it in the way that works the best for you. Now that you know how to calculate your modified adjusted gross income, calculate it and see if you get to claim a full deduction, partial deduction, or no deduction. Learn more about the IRA deduction income limits. The threshold is based on MAGI, marital status, and whether a retirement plan at work covers you or your spouse.

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