Modified Adjusted Gross Income (MAGI) is a term used in tax law to determine eligibility for certain deductions, credits, and retirement plans. It is calculated by adding Adjusted Gross Income (AGI) plus certain deductions, such as IRA contributions, student loan interest, and one-half of self-employment tax. MAGI can vary depending on the tax benefit, and the IRS uses it to determine eligibility for specific tax programs and benefits. For instance, it helps to determine the allowed amount of Roth IRA contributions and whether you qualify for certain tax credits, such as the Child and Dependent Care Credit, credits for the elderly or permanently disabled, the Child Tax Credit, and the Earned Income Tax Credit. MAGI is also used to determine eligibility for healthcare waivers and incentives under the Affordable Care Act (ACA) for states health insurance marketplaces, Medicaid, and the Childrens Health Insurance Program (CHIP) .

To calculate MAGI, you need to add back interest and expenses that you would have deducted from your AGI, such as student loan interest, half of the self-employment tax you paid, passive income losses, taxable Social Security payments, and deductible higher education expenses. Some exclusions for certain adoption expenses, foreign earned income, and U.S. savings bonds income also get added back to complete your MAGI calculation. If your MAGI is a little too high to qualify for health insurance premium subsidies, contributions to a pre-tax retirement account and/or a health savings account (HSA) will reduce your MAGI.