What is modified adjusted gross income (MAGI) and why do so many tax breaks depend on it?
MAGI is your adjusted gross income with certain deductions added back, such as some student loan interest, foreign income exclusions, or other specific items depending on the provision. The IRS uses MAGI, not your gross salary or taxable income, to test eligibility for a long list of benefits: Roth IRA contribution limits, deductibility of a traditional IRA, the Child Tax Credit and education credit phase-outs, ACA premium subsidies, and the Net Investment Income Tax. Because different provisions add back slightly different items, there is no single MAGI figure; each rule defines its own. The practical takeaway is that lowering AGI through pre-tax contributions often lowers MAGI too, helping you qualify for more breaks. Check each provision's MAGI definition when planning.
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