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Small Business Employee Benefits and HR Blog

Health Care Reform - Adjusted Gross Income vs. Modified AGI

Modified Adjusted Gross Income is a measure used by the IRS to determine if a taxpayer is eligible to use certain deductions, credits, or retirement plans. Beginning in 2014, individuals who purchase health insurance coverage through one of the new health insurance exchanges will be eligible for financial assistance if their income is no more than 400% of the federal poverty line (FPL).  “Modified Adjusted Gross Income” (not "Adjusted Gross Income") will be used in determining eligibility for these premium tax subsidies.Health Care Reform - Adjusted Gross Income vs. Modified AGI

What is Adjusted Gross Income?

Generally, your Adjusted Gross Income (AGI) is your household's income less various adjustments. Adjusted Gross Income is calculated before the itemized or standard deductions, exemptions and credits are taken into account.

What is Modified Adjusted Gross Income?

Generally, your Modified Adjusted Gross Income (MAGI) is the total of your house hold's Adjusted Gross Income and any tax-exempt interest income you may have (these are the amounts on lines 37 and 8b of IRS from 1040). 

How to Calculate Your Gross Income (GI)

Your gross income is the money you earned through wages, interests, dividends, rental and royalty income, capital gains, business income, farm income, unemployment and alimony. This is the basis for your AGI calculation.

Gross income includes salary, interest earned, income from investments and basically any income you made through business, trade or investments. 

How to Calculate Your Adjusted Gross Income (AGI)

Once you have gross income, you "adjust" it to calculate your AGI. You make adjustments by subtracting qualified deductions from your gross income.

Adjustments can include items like some contributions to IRAs, moving expenses, alimony paid, self-employment taxes, and student loan interest.

There are many free AGI calculators available online.

How to Calculate Your Modified Adjusted Gross Income (MAGI)

Once you have adjusted gross income, you "modify" it to calculate your MAGI. 

Specifically, Internal Revenue Code ((d)(2)(B)) states that MAGI is AGI increased by:

  • Any amount excluded from gross income in section 911 (Foreign earned income and housing costs for qualified individuals)

  • Any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax

  • Any amount equal to the portion of the taxpayer’s social security benefits (as defined in Section 86 (d)) which is not included in gross income under section 86 for the taxable year. (Any amount received by the taxpayer by reason of entitlement to a monthly benefit under title II of the Social Security Act, or a tier 1 railroad retirement benefit.)

For most people, MAGI is the same as AGI.

Why Your MAGI Matters

The IRS phases out credits and deductions as your income increases. By adding MAGI factors back to your AGI, the IRS determines how much you really earned. Based on that, it determines whether you can take full advantage of special tax credits. 

Beginning in 2014, your MAGI determines whether you will be eligible for premium tax credits on the new health insurance exchanges.

[Updated 12/31/2014]

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