Calculating MAGI for Various Tax Credits and Deductions

Calculating MAGI for Various Tax Credits and Deductions

Tax benefits and their phase out ranges are often based on Modified Adjusted Gross Income (MAGI). Updated for 2021. MAGI is calculated slightly differently for each program. See more below for how income is actually calculated to arrive at your MAGI.

Table of Contents:

  1. What is Income, AGI, and MAGI?
  2. Affordable Care Act
  3. Traditional IRA MAGI limits
  4. Roth IRA MAGI limits
  5. Education Credits (American Opportunity Credit and the Lifetime Learning Credit)
  6. Student Loan Interest Deduction
  7. Medicare Premiums and the Income Related Monthly Adjustment Amount (IRMMA)
  8. Child Tax Credit
  9. Long Term Capital Gains Tax and NIIT
  10. Tax Rates on Unemployment Benefits
  11. Tax Rates for Social Security Income
  12. Saver's Credit
  13. 2019-2021 Stimulus Payments
  14. Our Complete List of Tax Triggers
  15. Disclaimer and Warning
     

1. What Is Income, AGI and MAGI? 

Leave it to the IRS (and Congress) to take something simple like income and over complicate it to the point a spreadsheet is needed to calculate it...

For the purposes of your tax return there are three income figures to consider:

  • Gross Income – The money you earn in a year from all income sources like wages, tips, investments, and rent, without deductions. This is what matters to you, but not so much to the IRS.
  • Adjusted Gross Income (AGI) – Your annual gross income minus certain things like IRA contributions, education expenses, one half of self employment tax, alimony, etc. This is what the IRS generally begins to base your taxes off of.
  • Modified Adjusted Gross Income (MAGI) – AGI plus certain modifications that vary depending on the credit or deduction being considered.

The Internal Revenue Service (IRS) uses MAGI when determining if you qualify for certain tax benefits, credits, and deductions listed below. To make matters worse, MAGI is calculated differently depending on which tax benefit or deduction is being considered. For instance, in some cases MAGI may add back excluded foreign income and taxable social security payments, and in others it might be half of self employment taxes...

As important as it is, you will not find MAGI given in your tax returns. That means it is up to you to calculate it on a case by case situation. Some tax software will have it hidden away on a special worksheet but you have to dig for it.
 

2. Affordable Care Act 

Under the ACA, eligible taxpayers are given a premium tax credit to fund their health insurance. Health coverage through the ACA Health Insurance Marketplace is affordable, MUCH more affordable than buying a private plan. 

Eligibility depends on where your MAGI is compared to the Federal Poverty Level (FPL). The Federal Poverty Level varies by area (generally the lower 48, Alaska, and Hawaii are different zones). It also varies by the number of people in your household, the more people the higher the number.

2021 Federal Poverty Levels for lower 48 states:

Household Size

Poverty Level

1

$12,880

2

$17,420

3

$21,960

4

$26,500

5

$31,040

6

$35,580

7

$40,120

8

$44,660

For households with greater than 8 people, add $4,540 for each extra person.

To get the ACA premium tax credit your MAGI needs to be between 100% - 400% of the FPL. The closer it is to 100% of FPL without going under the bigger the credit is.

Unfortunately, if your MAGI is below 100% of the FPL, you are no longer eligible for premium tax credits. However, you do become eligible for Medicaid. 

If your MAGI goes above 400% FPL, you will not qualify for premium assistance either.

For example, in 2021 in the lower 48 states, for a family of 4, the Federal Poverty Level was $26,500. 400% of that would be $106,000. So as long as the MAGI for the family of 4 is between $26,500 and $106,000 they could be eligible for the premium tax credit.

This calculator from the Health Insurance Marketplace can give you an idea of what your credit might look like depending on your household size, location and income.

Calculate the MAGI for the ACA premium tax credit by adding the listed below deductions to your AGI. 

  • Foreign earned income and housing expenses 
  • Tax-exempt interest 
  • Non-taxable Social Security benefits
     

3. Traditional IRA MAGI Limits 

You can deduct your traditional IRA contributions in full if you and your spouse do not have a retirement plan at work. Otherwise, the deduction is reduced or eliminated.

Calculate the MAGI by adding the following to your AGI: 

  • Education - student loan interest, qualified tuition expenses and fees
  • Half of self employment taxes
  • Passive loss or income, rental losses
  • IRA contributions
  • The exclusions for foreign earned income and housing 
  • The exclusion for savings bond interest, exclusion for adoption expenses 

Filing Status 

Phaseout Range Or Income Limit 

Contribution / Deduction Limit  

Any status, no one covered by retirement plan at work

Unlimited

$6,000 per person for 2021, $7000 if over age 50

Single or head of household and covered by a retirement plan at work 

Below $66,000

Full deduction up to your contribution limit.

$6,000 for 2021
$7000 if over age 50

$66,000 to $76,000 

Partial

$76,000 and above

$0

Married filing jointly or qualifying widow(er) and you are covered by a retirement plan at work.

$105,000 or less

$6,000 for 2021
$7000 if over age 50

$105,000 to $125,000 

Partial

$125,000 and above

$0

Married filing jointly and spouse is covered by a retirement plan at work but you are not

Below $198,000

$6,000 for 2021
$7000 if over age 50

$198,000 to $208,000 

Partial

$208,000 and above

$0

Married filing separately and either spouse is covered by a retirement plan at work.

Below $10,000 

Partial

Above $10,000 

$0

 

4. Roth IRA MAGI Contribution Limits 

Roth IRA MAGI is calculated the same way as Traditional IRA MAGI. The exception is that here, you also add any Traditional IRA deductions that came from converting IRA to Roth IRA. If your income is too high you will not be allowed to make Roth IRA contributions. 

Filing Status 

Phaseout Range Or Income Limit 

Contribution Limit  

Single, head of household or married filing separately AND living separately

Below $125,000 

$6,000 for 2021
$7000 if over age 50

$125,000 to $140,000 

Partial 

$140,000 and above

$0 

Married filing jointly or qualifying widow(er) 

Less than $198,000 

$6,000 for 2021
$7000 if over age 50

$198,000 to $208,000 

Partial

$208,000 and above 

$0 

Married filing separately, but still living together

Less than $10,000 

Partial

$10,000 and above 

$0 

 

5. Education Credits

 

Within education credits, you have the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LOC). Qualifying education expenses and eligibility as a student will vary for each credit. The same rules apply to both for the phase out income ranges. 

Calculate the MAGI by adding the listed below deductions to the AGI. 

  • Foreign income exclusion 
  • Foreign housing inclusion 
  • Foreign housing deduction 
  • Income excluded of bona fide resident of America and Puerto Rico 

American Opportunity Credit 

AOC is worth $2,500 per eligible student for their first four years of higher education.

Filing Status 

Phaseout Range Or Income Limit 

Credit Limit  

Single, head of household, married filing separately or qualified widow(er) 

Below $59,000 

Full credit 

$59,000 to $69,000 

Partial credit 

$69,000 and above

Ineligible 

Married filing jointly 

Below $119,000

Full credit 

$119,000 to $139,000 

Partial credit 

$139,000 and above

Ineligible 

Lifetime Learning Credit 

The Lifetime Learning Credit is worth 20% of $10,000 qualified expenses or max $2,000 per return.

Filing Status 

Phaseout Range Or Income Limit 

Credit Limit  

Single, head of household, married filing separately or qualified widow(er) 

Below $59,000

Full credit 

$59,000 to $69,000 

Partial credit 

$69,000 and above

Ineligible 

Married filing jointly 

$119,000 or less 

Full credit 

$119,000 to $139,000 

Partial credit 

$139,000 and above

Ineligible 

 

6. Student Loan Interest Deduction 

The student loan interest deduction allows a deduction of up to $2,500 on your tax returns for the loan interest you paid this year. The MAGI calculation for this is the same as education credit.

Filing Status 

Phaseout Range Or Income Limit 

Deduction  

Single, head of household, or qualified widow(er) 

$70,000 or less 

Full deduction 

$70,000 to $85,000 

Reduced deduction 

$85,000 or more 

No claim on the deduction 

Married filing jointly 

$140,000 or less 

Full deduction 

$140,000 to $170,000 

Reduced deduction 

$170,000 or more 

No claim on the deduction 

Married filing separately 

NA 

NA 

 

7. Medicare Premiums and the Income Related Monthly Adjustment Amount (IRMMA)

When it comes to Medicare premiums, your MAGI is required to calculate the additional amount you’ll pay as premiums along with the percentage of the base premium you’ll be paying. However, these limits affect less than 5% of the population. 

When calculating MAGI for Medicare purposes, you’ll need to add the following tax-exempt income to your AGI: 

  • Tax-exempt interest income 
  • Income from US savings bonds used on higher education fees
  • Foreign earned incomes 
  • Income earned in certain US territories. 

You’ll find that the Medicare Premium you’re paying is adjusted according to your income or Income Related Monthly Adjustment Amount (IRMAA). Much like the Medicare premiums, MAGI is required to calculate IRMAA. The additional charge to your Medicare B depends entirely on the income that you declare through MAGI. However, IRMAA is decided based on the MAGI from 2 years prior.

The conditions for calculating MAGI for IRMAA is similar to that of the Medicare premiums. Deductions that will need to be added back include: 

  • Tax-exempt interest income received or accrued (interest from state and local bonds, etc.)
  • Interest from US Savings bonds used to pay higher education tuition.
  • Earned income of US citizens abroad that wasn’t included in the gross income. 
  • The non-taxable part of Social Security benefits. 
  • Any income from Guam, American Samoa, the Northern Mariana Islands, and Puerto Rico that wasn’t added in the AGI. 

Filing Status

Modified Adjusted Gross Income 

Part B Monthly Premium Amount 

Part D Prescription Drug Coverage Monthly Premium Amount

Single, head of household

Less than or equal to $88,000

2021 standard premium is $148.50

Your plan premium

From $88,00 up to $111,000

Standard premium + $59.40

Your plan premium +$12.30

From $111,000 to$138,800

Standard premium + $148.50

Your plan premium + $31.80 

From $138,800 to $165,00

Standard Premium + $237.60

Your plan premium + $51.20

From $165,000 to $500,000

Standard premium + $326.70

Your plan premium + $70.70

Equal to or above $500,000

Standard premium + $356.40

Your plan premium + $77.10

Married couples, filing jointly. 

Less than or equal to $176,000

2021 standard premium is $148.50

Your plan premium

From $176,000 to $222,000

Standard premium + $59.40

Your plan premium +$12.30

From $222,000 to $276,000

Standard premium + $148.50

Your plan premium + $31.80 

From $276,000 to $330,000

Standard Premium + $237.60

Your plan premium + $51.20

From $330,000 to $750,000

Standard premium + $326.70

Your plan premium + $70.70

Equal to or above $750,000

Standard premium + $356.40

Your plan premium + $77.10

Married but filing separately

Less than or equal to $88,000

2021 standard premium is $148.50

Your plan premium

From $88,000 to $412,000

Standard premium + $326.70

Your plan premium + $70.70

Equal to or above $412,000

Standard premium + $356.40

Your plan premium + $77.10

 

8. Child Tax Credit

Child Tax Credit allows taxpayers to receive up to $2,000 for every child (under age 17) that is dependent on them. The exact credit amount depends on the MAGI of those filing. 

In 2021, due to COVID relief bills, the child tax credit was temporarily increased to $3,000 per child under 18, and $3,600 per child under 6.

When calculating MAGI to apply or be eligible for Child Tax Credit, you’ll need to include the following to your AGI: 

  • Foreign earned income 
  • Housing exclusions 
  • Foreign housing deduction 
  • Excluded income from Puerto Rico
  • Excluded income for bona fide residents of American Samoa.

Filing Status 

Type of Tax Credit Payment

MAGI Amount

Payment You’re Eligible For

Single Filer

Full Expanded Child Tax Credit Payment

Under or Equal to $75,000

$3,600 for each child under 6

$3,000 for each child from 6-17

Partial Expanded Child Tax Credit 

Over $75,000

Credit is phased out by $50 every $1,000 over $75,000

Head of Household 

Full Expanded Child Tax Credit Payment

Under or equal to $112,500

$3,600 for each child under 6

$3,000 for each child from 6-17

Partial Expanded Child Tax Credit 

Over $112,500

Credit is phased out by $50 every $1,000 over $112,500

Married filing jointly

Full Expanded Child Tax Credit Payment

Under or equal to $150,000

$3,600 for each child under 6

$3,000 for each child from 6-17

Partial Expanded Child Tax Credit 

Over $150,000

Credit is phased out by $50 every $1,000 over $150,000


 

9. Long Term Capital Gains Tax and NIIT

Capital gains are taxed at either short-term or long-term rates. Short-term capital gains are taxed like ordinary income at rates up to 37%. Long-term capital gains (LTCG) are taxed at lower rates. To qualify for long-term capital gains an asset must be held for at least 1 year. Note that gains on some items like collectibles are taxed at 28% regardless of AGI.

Filing Status 

Income (AGI)

Long Term Capital Gains Tax  

Single

$40,400 or less

0%

Between $40,401 and $445,850

15%

$445,851 or more

20%

House of Household

$54,100 or less

0%

Between $54,101 and $473,750

15%

$473,751 or more

20%

Married filing jointly 

$80,800 or less

0%

Between $80,801 and $501,600

15%

$501,601 or more

20%

Married filing separately 

$40,400 or less

0%

Between $40,400 and $250,800

15%

$250,801 or more

20%

Additional NIIT tax:

Above a certain MAGI, taxpayers are expected to pay an added 3.8% net investment income tax (NIIT) on both long and short-term capital gains. 

When calculating MAGI for the purposes of NIIT, then you’ll need to include foreign earned income that was deducted for AGI. 

Unlike regular taxes, NIIT applies to individuals, trusts, and estates that have a modified adjusted gross income over a certain threshold amount. Whatever the threshold, the NIIT remains at an added 3.8% for all filers. 

Filing Status 

MAGI limit for NIIT 3.8% extra LTCG tax

Single or other

$200,00 and above

Married filing jointly or qualifying widower

$250,000 and above 

Married filing separately 

$125,000 and above

In the case of estates and trusts, NIIT applies based on AGI and the tax brackets for that year. If the AGI of a trust or estate is above the highest tax bracket for trusts in that year, NIIT comes into force.
 

10. Tax Rates on Unemployment Benefits 

Unemployment compensation or income is not free from taxation. Since the unemployment income is considered a taxable income, according to the IRS, there is a flat 10% tax rate on such income. 

However, it isn’t necessary to pay a tax on this income. Depending on your modified adjusted gross income, the unemployment compensation may not qualify for the 10% Federal tax on unemployment benefits. 

As of 2021, the IRS has widened these brackets. Now, regardless of how you file, if your MAGI is less than $150,000 then up to 10,200 of unemployment income paid to you is excluded from your taxable income. 

For married taxpayers, both spouses can individually exclude up to $10,200 of unemployment income. Even if the couple is filing jointly, the exclusion is taken separately for both parties. This doesn’t apply to any taxpayers whose modified adjusted gross income is $150,000 or more! 

For the tax rates on unemployment benefits, MAGI is calculated in the traditional manner. You’ll have to add back certain deduction to your AGI, including: 

  • Any deductions for IRA contributions 
  • Any deductions for taxable Social Security Payments 
  • Excluded foreign income 
  • Interest from EE savings bonds that was used to pay for higher education expenses. 
  • Losses from a partnership 
  • Passive income or loss 
  • Rental losses 
  • Exclusion for adoption expenses. 
     

11. Tax Rates for Social Security Income 

Social Security Income comprises several different kinds of payments. From retirement to disability payments, they all come under Social Security Income. However, this income is still taxable for anybody that needs to file their taxes. 

Social Security income tax gets a little confusing when it comes to dependents, like children on survivor benefits or those used as tax exemptions on someone else’s returns. If they are the latter and are being counted as tax exemptions on someone else’s tax return, they are taxed solely on Social Security income. 

The taxable social security income of the household or individual depends on the total modified adjusted gross income being filed. When it comes to children and tax dependents, their social security income is only counted as taxable if they have to file federal taxes for it. 

Filing Status 

MAGI 

Percentage of Benefits Taxed

Single 

Below $25,000

Not Taxed

From $25,000 to $34,000

Up to 50% of Social Security Income is taxed

From $34,000 and above 

Up to 85% of Social Security Income is taxed

Married 

Below $32,000

Not Taxed

From $32,000 up to $44,000

Up to 50% of Social Security Income is taxed

From $44,000 and above 

Up to 85% of Social Security Income is taxed

 

12. Saver’s Credit 

Saver’s Credit, previously known as the Retirement Savings Contributions Credit, gives low and moderate income taxpayers who are saving for retirement a special tax break. The Saver’s Credit is just one of many tax benefits given to those saving using a retirement account. 

There are several retirement accounts that qualify for the Saver’s Credit: 

  • 401K
  • 403(B)
  • 457 plan
  • Simple IRA 
  • SEP IRA

The eligibility for the Saver’s Credit also depends on certain factors: 

  • 18 or older 
  • Not a full-time student 
  • Not claimed as a dependent 
  • Retirement contribution is made in the tax year you’re filing for 
  • Income requirements are met

As of 2021 here is the breakdown:

Credit 

Single Filer

Head of Household 

Joint Filer

50%

$19,750 or less 

$29,625 or less

$39,500 or less

20%

From $19,751 to $21,500 

From $29,626 to $32,250

From $39,501 to $43,000

10%

From $21,501 to $33,000

From $32,251 to $49,500 

From $43,001 to $66,000

 

13. 2019-2021 Stimulus Checks

The Coronavirus Response and Relief Supplemental Appropriations Act was signed on December 27th, 2020. According to the act, there would be a second round of stimulus checks sent out. The eligibility and amount of the stimulus checks depend on your MAGI. 

The lowest MAGI from your 2019, 2020 or 2021 tax returns is what determines the amount you will receive via the stimulus check. So even if you did not get a check in 2019 or 2020, if your income qualifies in 2021 you could still get a check!

It goes as follows: 

  • Single filers whose MAGI is below $75,000/year 
  • Married, joint filers whose MAGI is below $150,000
  • Head of household filers whose MAGI is below $112,500 

Each household will receive $1600 per adult and $1600 for every child that is below the age of 17 who lives and depends on the household. 

If your income is higher than the given limits, then the amount of the stimulus check goes down by $5 for every $100 in additional income.
 

14. Our Complete List of Tax Triggers

Looking for a summary of all the major income level triggers related to various tax credits, deductions, and rates? Check out our resources page for a List of IRS Income Level Triggers. This page was more of a deep dive into the mechanics of each program and how MAGI is calculated.
 

15. Disclaimer and Warning

Wow there are a lot of numbers and details above. Enough to make any normal person feel overwhelmed...

We double checked everything and we think this information is correct. However you will need to verify on your own, given your own unique situation. Make sure to consult with your tax professional on these matters. The numbers and rules above change often. We will try to keep it updated but offer no guarantee of accuracy. Keep in mind that we are not CPAs, accountants, financial advisors or tax preparation professionals. 

This material is for educational purposes only. Nothing here should be taken as tax, legal, or investment advice. Thank you.

The post Calculating MAGI for Various Tax Credits and Deductions is part of a series on personal finances and financial literacy published at Wealth Meta. This entry was posted in Personal Finance
Leave a comment

The Wealth Meta community is based on authentic and insightful discussions. The best comments are when people share their questions, goals, insights, and encouragement. Trolling is not tolerated!

Markdown syntax supported. Check out the Markdown help guide here.