Does MAGI Include Standard Deduction?
Learn how a specific IRS income figure determines your eligibility for tax benefits and how it differs from the calculation for your taxable income.
Modified Adjusted Gross Income (MAGI) is an income calculation that does not factor in the standard deduction. The Internal Revenue Service (IRS) uses this figure to determine eligibility for certain tax benefits. MAGI is derived from your Adjusted Gross Income (AGI) but is a distinct calculation with a different purpose.
Defining Adjusted Gross Income (AGI)
Adjusted Gross Income is a figure on your tax return, calculated before considering the standard or itemized deductions. It represents your gross income from all sources, such as wages and business income, minus certain “above-the-line” deductions. These adjustments are listed on Schedule 1 of Form 1040.
Common above-the-line deductions include:
- Contributions to a traditional Individual Retirement Arrangement (IRA)
- Student loan interest paid during the year
- Certain educator expenses
- One-half of your self-employment taxes
- Health savings account (HSA) contributions
- Penalties on the early withdrawal of savings
The resulting AGI, found on line 11 of Form 1040, serves as the starting point for calculating both your taxable income and your MAGI.
Calculating Modified Adjusted Gross Income (MAGI)
The calculation for MAGI begins with your AGI. From there, specific deductions that were previously subtracted to find AGI are added back. You will not find a line for MAGI on your Form 1040; it is a figure you or your tax software must calculate separately.
The standard deduction is a “below-the-line” deduction, subtracted from AGI to find your taxable income, not AGI itself. Since the standard deduction is not part of the AGI calculation, it is not added back to determine MAGI. Common items added back to AGI include tax-exempt interest, non-taxable Social Security benefits, foreign-earned income, and student loan interest deductions, though the specific items can vary depending on the tax benefit.
The Role of the Standard Deduction
The standard deduction is a specific dollar amount that you can subtract from your AGI if you choose not to itemize deductions, such as mortgage interest or charitable contributions. This subtraction reduces the amount of your income subject to federal income tax, establishing your final taxable income.
The amount of the standard deduction is not uniform for all taxpayers. It varies based on filing status, age, and whether the taxpayer or their spouse is blind. The IRS adjusts these amounts annually for inflation. This deduction applies after AGI has been determined and has no bearing on the MAGI calculation.
Common Uses for MAGI
The IRS uses MAGI as an income threshold to phase out or disqualify taxpayers from certain tax credits and deductions. Because MAGI results in a higher income figure than AGI, it is a more restrictive measure for determining eligibility for tax benefits. This ensures tax advantages are targeted toward specific income brackets, and the MAGI limits are often adjusted annually.
MAGI is used to determine eligibility for several widely used tax provisions. It dictates eligibility for:
- Deducting contributions to a traditional IRA if you are covered by a retirement plan at work
- Contributing to a Roth IRA
- Qualifying for education benefits like the Lifetime Learning Credit
- Receiving the Premium Tax Credit for health insurance plans purchased through the Health Insurance Marketplace