Modified Adjusted Gross Income (MAGI)
Adjusted gross income with certain items added back, used to gate eligibility for credits, deductions, surcharges, and Medicare IRMAA, with the exact add-backs differing by rule.
Detailed Explanation
MAGI starts with adjusted gross income (Form 1040 line 11) and adds back specific items, but there is no single MAGI: each Code provision defines its own add-backs. For Roth IRA contribution eligibility, MAGI adds back the foreign earned income exclusion and the traditional IRA deduction, among others. For the 3.8% Net Investment Income Tax, MAGI is AGI plus the net foreign earned income exclusion. For the Affordable Care Act Premium Tax Credit, MAGI adds tax-exempt interest, excluded foreign income, and the nontaxable portion of Social Security. For Medicare IRMAA, MAGI is the simplest version: AGI plus tax-exempt interest only. Because tax-exempt municipal bond interest is added back in most MAGI definitions, "tax-free" income can still reduce a credit or trigger a surcharge. Knowing which MAGI applies to which rule is central to tax planning, because the same dollar of income can be invisible for one purpose and disqualifying for another.
Key Points
- There is no single MAGI; each provision (Roth IRA, NIIT, Premium Tax Credit, IRMAA) defines its own add-backs.
- For Medicare IRMAA, MAGI equals AGI (line 11) plus tax-exempt interest (line 2a) only.
- Tax-exempt muni bond interest is added back in most MAGI tests, so it can still cost a credit or trigger IRMAA.
- Roth IRA MAGI adds back the foreign earned income exclusion and the IRA deduction.
- Lowering MAGI (HSA contributions, QCDs, retirement deferrals, gain and loss timing) is the lever behind many planning moves.
Practical Example
A retiree with $90,000 of AGI also collects $25,000 of tax-exempt municipal bond interest. For income tax the muni interest is tax-free, but her IRMAA MAGI is $115,000, which pushes her over the $109,000 single-filer threshold and adds a Medicare surcharge she did not expect.
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Learn about Tax Planning & StrategyRelated Terms
Adjusted Gross Income (AGI)
Adjusted Gross Income is your total gross income reduced by specific above-the-line deductions, used as the starting point for calculating your federal taxable income.
IRMAA (Income-Related Monthly Adjustment Amount)
A Medicare premium surcharge added to Part B and Part D for higher-income beneficiaries, set by a two-year look-back at modified adjusted gross income and applied as an all-or-nothing income "cliff."
Net Investment Income Tax (NIIT)
A 3.8 percent additional federal tax on net investment income for taxpayers with modified adjusted gross income above statutory thresholds.
Roth Conversion
The process of moving funds from a traditional pre-tax retirement account (IRA, 401(k)) to a Roth account, paying ordinary income tax on the converted amount in exchange for tax-free future growth and withdrawals.
Foreign Earned Income Exclusion (FEIE)
A tax provision allowing qualifying US citizens and residents living abroad to exclude a portion of foreign-earned wages and self-employment income from US taxation.
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