MAGI means modified adjusted gross income. It starts with an income number from your tax return, then changes it for a specific rule.
What it means
The confusing part is that MAGI is not always one universal number. A Roth IRA rule, a Marketplace rule, and a Medicare rule may add back different items.
When a calculator asks for MAGI, find out which rule it is using. Do not assume the number is simply your salary or the money that reaches your bank account.
A simple example
Two people each earn $60,000 from work. One also takes $40,000 from a traditional IRA and receives investment income. Even with the same paycheck, their modified adjusted gross income may be very different.
The answer can also change depending on who is asking. The Affordable Care Act Marketplace, Medicare, and Roth IRA rules do not always calculate MAGI the same way. Before using a calculator, ask which program's MAGI it wants and which tax-return lines belong in the number.
What people often miss
MAGI can affect tax breaks, Roth IRA eligibility, health-insurance help, and Medicare costs.
A small change in income can matter when a program uses a sharp cutoff or a new price level.
Three questions worth asking
- Which program's MAGI are we calculating?
- Which tax return lines are used?
- What income choice could move the number?
Checked against primary sources
This explanation was checked against the sources below. Rules and limits can change, so check the source before making a decision.
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