Modified Adjusted Gross Income

Modified adjusted gross income, or MAGI, is not used on an individual income tax return in the United States. While the name sounds similar to the term "adjusted gross income" which is used as a basis for calculating tax liability, the significance of modified adjusted gross income is very narrow. There are only a few specific tax situations where a taxpayer would need to calculate his modified adjusted gross income.

Circumstances that involve modified adjusted gross income include deciding how much of an IRA contribution can be deducted and calculating how much tax-free interest income can be excluded for the purposes of claiming a tax deduction for the education savings bond program. Taxpayers whose MAGI exceeds a certain amount may have their available IRA contribution deduction limited. Those who would like to claim the education savings bond deduction must use their MAGI to calculate how much of their interest income can be excluded. Should their MAGI exceed the threshold limit, they may not be able to exclude the maximum amount of interest income allowed.

Put simply, modified adjusted gross income refers to the taxpayer's adjusted gross income amount plus certain items such as tax-exempt interest income, IRA contributions, foreign income, and deductions for student loan interest. Some non-passive loss activities may also be included in MAGI calculations. Taxpayers whose financial circumstances require them to calculate their modified adjusted gross income may prefer to receive tax advice from a qualified income tax professional before attempting to prepare their own tax returns.