What is "modified adjusted gross income"?

Modified Adjusted Gross Income, or MAGI, is what the IRS uses to determine whether a taxpayer is eligible for specific deductions. MAGI is calculated by using adjusted gross income as a starting point and adding back amounts for foreign income, student loans, higher-education costs and more.

Some deductions that use the MAGI calculation include tax credits and Traditional and Roth IRA contribution levels. The higher the MAGI, the smaller the portion of IRA contribution is permitted to be deducted. However, a taxpayer may choose to fund an IRA anyway, even if the total amount of the contribution is not tax deductible.