Key Takeaways
- Gross income is everything you earned before any adjustments; AGI subtracts specific IRS-allowed deductions from it; MAGI adds some of those same deductions back for a handful of specific eligibility tests.
- MAGI, not AGI, determines your Roth IRA contribution eligibility, your traditional IRA deduction if you're covered by a workplace plan, your ACA marketplace subsidy, and your Medicare IRMAA surcharge.
- The ACA subsidy cliff is back for 2026: marketplace premium subsidies now cut off entirely at 400% of the federal poverty level ($62,600 for a single person), after the enhanced pandemic-era subsidies expired January 1, 2026.
- For 2026, the Roth IRA contribution phase-out is $153,000-$168,000 MAGI for single filers and $242,000-$252,000 for married filing jointly.
- Your personal exemption and standard or itemized deduction come after AGI and MAGI - they reduce your taxable income, which is a separate, later calculation.
Your gross income, your adjusted gross income (AGI), and your modified adjusted gross income (MAGI) are three different numbers — and mixing them up is one of the most common ways people miscalculate their own eligibility for a Roth IRA, an IRA deduction, or an ACA health insurance subsidy.
Gross Income: Where It All Starts
Gross income is every dollar you earned during the tax year before any adjustments: wages, self-employment income, interest, dividends, rental income, and unemployment compensation all count. Gifts, inheritances, and tax-exempt interest from municipal bonds don’t.
For employees, gross income shows up on your W-2 in Box 1 (wages, tips, and other compensation). For contractors and freelancers, nonemployee compensation is now reported on Form 1099-NEC, not the old 1099-MISC Box 7 — the IRS separated the two forms starting with the 2020 tax year.
Adjusted Gross Income (AGI): Gross Income Minus Specific Deductions
AGI is your gross income minus a defined list of above-the-line deductions the IRS allows regardless of whether you itemize. For 2026, those include: traditional IRA contributions (subject to their own limits), half of self-employment tax, self-employed health insurance premiums, HSA contributions, educator expenses, and the newer One Big Beautiful Bill (OBBB) deduction for tips and overtime pay reported on Schedule 1-A.
AGI is the number printed near the bottom of page 1 of your Form 1040, and it’s the starting point for calculating your taxable income — before your standard or itemized deduction is applied and before your tax bracket is determined. A lower AGI generally means you qualify for more tax benefits, which is the core idea behind most legal tax planning.
Modified Adjusted Gross Income (MAGI): AGI Plus Specific Add-Backs
MAGI starts with your AGI and adds back specific items depending on which tax benefit you’re checking eligibility for. Common add-backs include the foreign earned income exclusion, tax-exempt interest, and the deduction for traditional IRA contributions (for the Roth eligibility test specifically).
Here’s the part that trips people up: MAGI isn’t one universal number. The IRS calculates it slightly differently depending on which credit, deduction, or program you’re checking eligibility for — the MAGI used for Roth IRA eligibility isn’t calculated the same way as the MAGI used for ACA subsidies.
Where MAGI Actually Gets Used
| Purpose | 2026 MAGI Threshold |
|---|---|
| Roth IRA contribution (single) | Phases out $153,000–$168,000 |
| Roth IRA contribution (MFJ) | Phases out $242,000–$252,000 |
| Traditional IRA deduction, covered by workplace plan (single) | Phases out $81,000–$91,000 |
| Traditional IRA deduction, covered by workplace plan (MFJ) | Phases out $129,000–$149,000 |
| ACA marketplace premium subsidy | Cuts off entirely above 400% of the federal poverty level ($62,600 single / $128,600 family of four) |
| Medicare Part B/D IRMAA surcharge | Based on MAGI from two years prior |
Subscribe or follow us — I’ll update this page each year as the IRS adjusts these thresholds for inflation.
Two Worked Examples
Maria is single, earns $145,000 in wages, and contributes $4,000 to a traditional IRA (she’s not covered by a workplace plan, so it’s fully deductible). Her AGI is $141,000. For Roth IRA purposes, her MAGI adds back that IRA deduction, bringing her back to roughly $145,000 — still comfortably under the $153,000 phase-out floor, so she can also make a full Roth contribution in the same year if she chooses a different account.
Tom is married filing jointly with his spouse, and their combined wages total $255,000. Even though Tom maxes out his 401(k) (which lowers his W-2 Box 1 wages directly, not just his AGI), his household MAGI still lands above the $252,000 Roth phase-out ceiling, so neither he nor his spouse can contribute directly to a Roth IRA that year — he’d need to use the backdoor Roth conversion method instead.
Common Issues to Watch Out For
Assuming a 401(k) contribution and a traditional IRA contribution work the same way. A 401(k) contribution is excluded from Box 1 wages entirely (it lowers gross income at the source); a traditional IRA contribution is included in gross income and then subtracted separately to reach AGI. The end result is similar, but the mechanics — and what gets added back for MAGI — differ.
Confusing which MAGI applies. The add-backs used for Roth IRA eligibility are not identical to the add-backs used for ACA subsidy calculations. If you’re checking eligibility for two different programs, don’t assume the same MAGI figure applies to both.
Forgetting the ACA subsidy cliff returned for 2026. The enhanced pandemic-era premium tax credits expired January 1, 2026. Marketplace enrollees whose MAGI now lands even one dollar over 400% of the federal poverty level lose their entire premium subsidy, not just a portion of it.
Assuming AGI alone determines credits like the EITC. The Earned Income Tax Credit actually uses the greater of your AGI or your earned income to test eligibility, which catches people off guard if they have meaningful unearned income (interest, dividends) alongside modest wages.
Not accounting for MAGI’s two-year lookback for Medicare. Your Medicare IRMAA surcharge this year is based on your MAGI from two tax years ago, so a single high-income year (a home sale, a large Roth conversion) can trigger a surcharge two years later even after your income has dropped back down.
Looking Ahead: 2027
The IRS typically announces the following year’s inflation-adjusted thresholds — including Roth and traditional IRA phase-out ranges — in the fall. Watch also for whether Congress revisits the ACA’s expired enhanced subsidies before the 2027 plan year, since that would directly change how much marketplace MAGI matters for millions of filers.
