A Quick Guide to Where Modified Adjusted Gross Income is Used

July 17, 2015

Where MAGI is Used - A Guide for Small BusinessWhether you are shopping for personal health insurance, assisting a client with taxes, or following the Affordable Care Act, you’ve probably heard the term Modified Adjusted Gross Income, or MAGI.

MAGI is one of the federal government’s income calculations to determine eligibility for various tax credit and assistance programs. This article provides a quick guide to where MAGI is used and why it matters to small business owners.

Note - This article is from our free eBook, The Small Business Owner's Guide to Modified Adjusted Gross Income. To access the complete resource, click here.

First, What is MAGI?

MAGI is a representation of your income in order to determine whether you are eligible to receive various federal tax credits (including health insurance premium tax credits and retirement plans).

MAGI is your gross income adjusted for deductions and then modified by adding specific deductions back in.

Related: How to Calculate Modified Adjusted Gross Income (MAGI)

Where is MAGI Used?

The federal government uses the MAGI income calculation to determine eligibility for various tax credit and assistance programs, including the following:

Eligibility for Premium Tax Credits

If your MAGI is less than 400% of the Federal Poverty Line (FPL), you could be eligible for discounts on individual health insurance.

Eligibility for Medicaid or CHIP

Depending on your state, if your MAGI is less than 138% of FPL, you and/or your dependents could be eligible for government health insurance programs such as Medicaid or CHIP.

Percentage of the Federal Poverty Line

As mentioned above, the FPL is a measurement used for government program eligibility. See: 2015 Federal Poverty Line (FPL) Charts.

Individual Shared Responsibility Payment

If you do not have health insurance coverage, you may be required to pay a fee at tax time. Unless, that is, your Gross Income (not MAGI) is below the filing threshold.

Retirement Savings Deductions

MAGI is used to determine how much of an individual’s IRA contribution is deductible.

Eligibility for Education Tax Credits

If your MAGI is less than $64,000 (single) or $128,000 (married filing jointly), you could be eligible for a lifetime learning credit.

Eligibility for Adoption Tax Credits

If your MAGI is less than $237,880 you could be eligible for adoption tax credit and assistance programs.


By understanding how to calculate MAGI, you will better understand eligibility for various tax credits and assistance programs including premium tax credits, Medicaid eligibility, retirement savings deductions, education tax credits, and adoption tax credits.

What questions do you have about MAGI or where it is used? Download the PDF guide, or leave a comment below.

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