How to calculate modified adjusted gross income (MAGI)

By Elizabeth Walker on January 26, 2026 at 3:30 PM

The Affordable Care Act (ACA) offers premium tax credits to help eligible individuals and families buy affordable individual health insurance coverage through the Health Insurance Marketplace.

The American Rescue Plan of 2021 and the Inflation Reduction Act enhanced the advance premium tax credit provisions, guaranteeing that no American would pay more than 8.5% of their household income for a benchmark silver plan through 2025. However, with the recent expiration of the enhanced credits, it’s vital to understand what this means for subsidies and your household income, which is based on your “modified adjusted gross income” (MAGI).

Knowing your MAGI is important for many aspects of your taxes and health insurance, so you’ll want to run the proper calculations so you can determine if you’re eligible for any tax breaks or subsidies. In this article, we’ll go over what MAGI means and how you can calculate yours.

In this blog post, you’ll learn:

What modified adjusted gross income (MAGI) is and why it matters for taxes and health insurance subsidies.

How recent changes to premium tax credits affect MAGI-based eligibility.

Step-by-step instructions for calculating your MAGI to receive tax benefits.

What is modified adjusted gross income?

Your MAGI is generally your adjusted gross income (AGI) with certain tax-exempt interest income and deductions added back in, depending on the specific tax credit or program. The IRS uses your MAGI in many ways to determine if you’re eligible for certain deductions and credits, such as student loan interest deductions and the Child Tax Credit.

Your MAGI determines whether or not you can do the following:

Contribute to a Roth individual retirement account (IRA).
- To contribute, your MAGI must be below the IRS threshold¹. If you’re under the threshold, your MAGI will also determine your contribution limit.
Deduct your traditional IRA contributions if you or your spouse has an employer-sponsored retirement plan, such as a 401(k).
Qualify for income-based Medicaid coverage.

If your MAGI is above the income levels set by the IRS for these credits or deductions, you won’t be able to qualify for them.

Modified adjusted gross income and premium tax credits

Your MAGI will also determine whether you’ll qualify for health insurance subsidies, like premium tax credits. These subsidies reduce your health insurance costs if you buy a qualified plan through the federal Health Insurance Marketplace or a state-based exchange.

As of January 1, 2026, the enhanced advance premium tax credits extended through 2025 under the Inflation Reduction Act expired. The eligibility thresholds also ended, reestablishing the 400% federal poverty level (FPL) eligibility cap and eliminating the capping of premiums as a percentage of an individual’s household income.

Unless new legislation passes to reestablish the enhanced tax credits, eligibility for premium tax credits will return to pre-2021 rules². This means that only households with a MAGI between 100% and 400% of the FPL will be eligible for credits. It also reinstates the “subsidy cliff,” where households earning slightly above 400% of the FPL may lose access to tax credits.

Lastly, if your employer offers you a health reimbursement arrangement (HRA), you must understand how it interacts with premium tax credits. With a stand-alone HRA, your employer gives you a tax-free monthly allowance that you can use to buy individual health coverage and out-of-pocket expenses. Once you make an eligible purchase, your employer will reimburse you for the cost, up to your set allowance amount.

There are special rules you must follow to coordinate your premium tax credit with your stand-alone HRA compliantly:

The qualified small employer HRA (QSEHRA) can coordinate with tax credits depending on affordability.
- If your QSEHRA is affordable for a given month, you can’t collect your subsidy for that month.
- If your HRA is unaffordable for one or more months, you can collect your credits if you qualify for them. However, you must reduce your subsidy by the amount of your QSEHRA allowance.
Individual coverage HRA (ICHRA) and subsidy coordination also depend on affordability. However, unlike the QSEHRA, you must choose between the ICHRA and your premium tax credits.
- You should waive your tax credits and opt into the ICHRA if your benefit is affordable.
- If it’s unaffordable, you can opt out of the ICHRA and collect your tax credits. If you opt out of the ICHRA and the benefit is affordable, you can’t receive your tax credits.

How do I calculate my modified adjusted gross income?

Calculating your MAGI is key to determining if you qualify for a premium tax credit and other federal tax deductions.

MAGI calculations will vary slightly depending on the tax benefit, but the basic steps are below:

Step 1: Calculate your gross income
Step 2: Calculate your adjusted gross income
Step 3: Calculate your modified adjusted gross income

Let’s go over each step in more detail.

Step 1: Calculate your gross income

Your gross income (GI) is the simplest form of income. It includes all the money you earn, with no tax deductions applied to the total amount.

Your GI can come from a lot of places, including taxable income you earned through:

Wages, tips, and salaries
Dividends
Rental and royalty income
Capital gains
Business income
Farm income
Unemployment
Alimony received from divorce agreements
Interest
Retirement income

Once you add up all your income, you’ll report it on line 9 of IRS Form 1040.³ Your GI is the basis for your adjusted gross income (AGI) calculation, which we’ll cover in the next section.

Step 2: Calculate your adjusted gross income

Once you have your gross income, you’ll "adjust" it to calculate your adjusted gross income (AGI) by subtracting qualified tax deductions.

Your AGI is the total taxable income before you make any standard, itemized deductions, or exemptions, and determines your eligibility for certain tax credits, such as:

The child and dependent care credit
Credits for older adults or individuals with permanent disabilities
The adoption tax credit
The Child Tax Credit
The American Opportunity Tax Credit
The Lifetime Learning tax credits
The Earned Income Credit

Adjustments can include items such as:

Certain business expenses for gig performers, reservists, and contracted government employees
IRA contributions
- You can contribute to a traditional IRA regardless of your household income, though the ability to deduct those contributions depends on your MAGI. However, if you exceed your contribution limit and don’t remove the funds, you must pay an annual 6% tax penalty until you withdraw the extra money.
- You can usually deduct your annual IRA contributions. However, you’ll be subject to limited deductions if your MAGI exceeds the IRS limit and you or your spouse has an employer-sponsored retirement plan.
Health savings account (HSA) contributions
Health insurance premiums (for self-employed individuals)
Half of any self-employment tax payments
Moving expenses for active-duty military
Alimony payments
Educator expenses
Tax penalties for early savings withdrawals
Tuition and fees deductions
Student loan interest deductions

You won’t be able to qualify for many deductions, such as mortgage insurance premiums and charitable contributions, if you have an AGI above a certain threshold.

Your MAGI won’t appear directly on Form 1040. However, you’ll calculate it using your AGI, which you can find on line 11 of IRS Form 1040.³

Step 3: Calculate your modified adjusted gross income

Now that you’ve figured out your AGI, you’re ready to calculate your MAGI. The IRS phases out credits and allowable deductions as your income increases. So by adding these factors back into your AGI, the IRS determines how much you really earned, which gives you your MAGI.

To determine eligibility for premium tax credit and Medicaid/CHIP programs, add the following income back to your AGI³:

Tax-exempt interest income
Untaxed foreign income
Non-taxable Social Security benefits

For other tax credits or deductions, you may need to add the following to your AGI according to IRS rules⁵:

Student loan interest deduction
One-half of your self-employment tax
Qualified tuition expenses, including deductions for tuition and fees
Passive income or losses
Rental losses or losses from a publicly traded partnership
Traditional IRA contributions
Certain income exclusion items
- This includes U.S. savings bonds income, foreign exclusion, adoption expenses, and foreign housing exclusions.

If this looks confusing, don’t worry! The good news is that most people don’t have any of the income described above, so your MAGI will likely be the same as your AGI. If you still need extra help, you can work with a tax professional to ensure you’ve done the calculations correctly.

Conclusion

Your MAGI plays an important role when filing taxes because it determines what you owe the IRS and what tax benefits you’re eligible to receive. Better yet, once you know your MAGI, you can shop for an individual health plan on the ACA Marketplace and see if you qualify for any available subsidies. By following the steps in this article, you’ll have everything you need to know about your income and how it influences your health insurance premiums.

PeopleKeep doesn't provide tax or legal advice. This article is for informational purposes only. Reach out to a tax professional if you have further questions.

This article was originally published on September 20, 2021. It was last updated on January 26, 2026.