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Mike DiSabatino CPA

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Modified Adjusted Gross Income - What is it?


Under the Affordable Care Act, eligibility for income-based Medicaid and subsidized health insurance, such as Covered California, through the marketplaces is calculated using the modified adjusted gross income (MAGI) of your household.  Let's take a look at how this MAGI is different then the Adjusted Gross Income found on your tax return. 

The first thing to recognize is that your modified adjusted gross income is not the same thing as your total income, or as your adjusted gross income (AGI);

OK.. start by finding Your Adjusted Gross Income (AGI) - Your AGI is the total amount of income you make in a year, minus certain deductible expenses. The AGI is found on line 37 of IRS Form 1040, on line 21 of IRS Form 1040A, and on line 4 of IRS Form 1040EZ. The IRS is working on a new Form 1040 for the 2019 tax season. The location of your adjusted gross income may change, but the same concepts will apply in determining how to calculate your AGI.

Adjusted gross income includes all your income, including:

  • Wages
  • Investment Income
  • Business Income
  • Retirement Income
  • Alimony Income
  • Rental Income
  • Farm Income

The total amount of income then is "adjusted" by subtracting tax-deductible expenses. These may include the following common deductions among the list:

  • Educator Expenses
  • Health Savings Account (HSA) Contributions
  • Health Insurance Expenses (If you're self-employed)
  • IRA Deductions or Self Employed Deferred Accounts
  • Alimony Paid
  • Student Loan Interest
  • Self-Employed Tax
  • Tuition and Fees for Higher Education

The adjusted gross income is a starting point to calculate your total income tax. It also uses it to determine if you're eligible for a variety of credits and exemptions, including charitable deductions, deductions for adoption expenses, dependent tax credits, and the earned income credit, and beacuse of this... it's generally in your best interests to lower your AGI as much as possible, given your earnings. You should find as many tax-deductible expenses as possible to subtract from the total.

Now, on to How to Calculate Your MAGI
You won't find your modified adjusted gross income on your tax return. Fortunately, though, it's easy to calculate. Start with your adjusted gross income, the figure on the last line of the front of your 1040 or 1040A tax form (line 37 for Form 1040, line 21 for Form 1040A, or line 4 for Form 1040EZ). Then find yourself a calculator, and add back:

  • Any deductions you took for IRA contributions. (1040 line 32)
  • Any deductions you took for student loan interest or tuition. (1040 Line 33)
  • Half of your self-employment tax. (1040 Line 27)
  • Passive income or loss. (See form 8582)
  • Excluded foreign income. 
  • Rental losses. (See 1040 Schedule E) 
  • Interest from EE savings bonds used to pay higher education expenses.
  • Employer-paid adoption expenses.
  • Losses from a publicly traded partnership. (See Schedule E)
  • Non-Taxable portion of Social Security or Disability Income
  • Non-Taxable Interest Income - such as Income from US Savings Bonds.

... so there you have it.  Surely a difference from looking at your taxes and using the AGI.

 As always, feel free to pass this Tip along to friends, and reach out if you need help with your personal tax and finance situation. 

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. All rights reserved.

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