What Is MAGI? How High-Income W-2 Families Calculate It

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

MAGI (modified adjusted gross income) is your adjusted gross income with a few specific items added back, and the IRS uses it to decide whether you can take certain credits, deductions and account contributions. For most W-2 families with no foreign income, MAGI is almost exactly the same number as AGI. To estimate it, add up box 1 of every W-2, add taxable interest, dividends and net capital gains, subtract any above-the-line adjustments, then apply the add-backs for the specific rule you are checking.

The catch is that there is no single MAGI. The Roth IRA test, the 3.8% Net Investment Income Tax, the Child Tax Credit, the SALT deduction cap and ACA health subsidies each define it a little differently. This guide walks through the calculation for a two-earner household in California or Washington with RSUs and young children, and shows which MAGI lines still matter once income passes $750,000.

AGI vs. MAGI: what each one includes

AGI is your total income minus “above-the-line” adjustments such as HSA contributions made outside payroll, a deductible traditional IRA contribution or student loan interest. On the 2025 Form 1040, AGI is line 11a (IRS Pub 590-A, Worksheet 2-1). For help finding it, see which line is MAGI on Form 1040.

MAGI starts from AGI and adds back items the rule in question wants counted. The standard deduction and itemized deductions come after AGI, so they never lower MAGI (more in does the standard deduction reduce MAGI).

Sources: Pub 590-A, IRS Notice 2025-67, IRS NIIT page, IRS Child Tax Credit page, Rev. Proc. 2025-32, P.L. 119-21, HealthCare.gov.

Step by step: estimating MAGI from your W-2s

1. Start with W-2 box 1, not your salary. Box 1 already excludes pre-tax 401(k) deferrals, pre-tax health premiums, payroll HSA contributions and dependent care FSA money. It includes RSU income at vest and any bonus.
2. Add investment income. Taxable interest, ordinary dividends and net capital gains from your 1099s. Selling RSU shares above their vest-date value creates a gain here; selling at the vest price creates almost none.
3. Subtract above-the-line adjustments. At this income level the list is usually short: HSA contributions made outside payroll and little else. For 2026, a traditional IRA contribution is not deductible once MAGI passes $149,000 for a spouse covered by a workplace plan, or $252,000 for a spouse who is not covered but whose partner is.
4. Apply the add-backs for the rule you are testing (table above). For a family with no foreign income, this step usually changes nothing.

Worked example: a $1 million California household

Assumptions (illustrative, 2026 tax year, married filing jointly, two children ages 4 and 7):

• Spouse A, biotech scientist: $600,000 W-2 pay, including $220,000 of RSU vests.
• Spouse B, physician employed by a hospital system: $400,000 W-2 pay.
• Pre-tax payroll: $49,000 of 401(k) deferrals (2 x $24,500), $8,000 of health premiums, $7,500 dependent care FSA.
• Investments: $30,000 of taxable interest and dividends, $45,000 of net long-term gains, $10,000 of California municipal bond interest.

What that MAGI means for 2026:

• Roth IRA: $1,010,500 is far above the $252,000 MFJ phase-out, so direct Roth contributions are not allowed. Income from a backdoor Roth conversion is subtracted when figuring Roth MAGI, but it does not help here. The backdoor route, or a mega backdoor Roth in a 401(k) that allows after-tax contributions, is the realistic path.
• Net Investment Income Tax: the tax is 3.8% of the smaller of net investment income ($75,000) or MAGI over $250,000 ($760,500). That is $75,000 x 3.8% = $2,850.
• Child Tax Credit: two children start at $4,400, which phases out completely by $488,000 of MAGI. This family gets $0.
• SALT cap: the $40,400 cap drops by 30% of MAGI over $505,000 and hits the $10,000 floor at about $606,333. This family deducts at most $10,000 of state and property tax.
• Not MAGI: the 0.9% Additional Medicare Tax runs on Medicare wages (W-2 box 5), not MAGI. Here that is $984,500 (401(k) deferrals stay in box 5), so the tax is ($984,500 – $250,000) x 0.9% = about $6,611.

The takeaway: at $750,000 and above, MAGI mostly confirms what you already lost. The planning value is in knowing which tests still move with each dollar (NIIT, and in Washington from 2028, a $1,000,000 AGI line), and not spending effort trying to get under limits that are $500,000 away.

How MAGI plays out in California vs. Washington

California starts from federal AGI and then adjusts it on Schedule CA. Two adjustments are common for this reader. Employer HSA contributions (W-2 box 12, code W) are added back, and interest from non-California municipal bonds is taxable in California even though it is federally tax-free (FTB 2025 Schedule CA instructions). California also taxes capital gains as ordinary income, and the extra 1% Behavioral Health Services Tax applies to taxable income over $1,000,000 for 2025, the same threshold for joint filers (FTB 540 booklet).

Washington has no individual income tax for 2026, so state MAGI does not exist yet. Two things still matter. The 7% capital gains tax (9.9% on taxable gains above $1,000,000) applies to long-term gains above a standard deduction of $278,000 (2025 figure). And from January 1, 2028, Washington adds a 9.9% income tax on individuals and joint filers with AGI over $1,000,000 (WA DOR). DOR has not yet said how income will be calculated for this tax, so a Seattle household with income like the example above should treat the $1,000,000 line as something to watch rather than a number it can compute today.

What actually moves MAGI for a W-2 family

• Lowers it: pre-tax 401(k) deferrals ($24,500 per spouse for 2026), HSA contributions ($8,750 family limit with an HDHP), dependent care FSA ($7,500 per household), and up to $3,000 of net capital losses against other income (IRS Topic 409).
• Does not lower it: Roth 401(k) deferrals, after-tax (mega backdoor) contributions, charitable gifts, mortgage interest, the standard deduction, and 529 contributions.
• Raises it: RSU vests, bonuses, selling appreciated shares, Roth conversions of pre-tax money, and fund distributions in a taxable account.

For more on the levers, see ways to reduce MAGI and how a brokerage account is taxed when you do not sell.

Common MAGI mistakes at this income level

• Using gross salary instead of box 1, which overstates AGI by the pre-tax deductions.
• Forgetting that RSU vests count as wages in the year they vest, even if you never sold a share.
• Contributing directly to a Roth IRA in January, then learning in April that MAGI was over the limit. Unless the excess is withdrawn by the return due date (including extensions), it carries a 6% tax for each year it stays in the account (Pub 590-A).
• Assuming municipal bond interest is invisible. It stays out of AGI, but it counts for ACA MAGI and, if issued outside California, for California tax.

What to write down for your kids

MAGI is a small idea that explains a lot of family decisions: why you max the 401(k), why you do a backdoor Roth instead of a regular one, why the kids’ 529 was funded from after-tax money. A one-page note each year with your AGI, which limits you were over, and what you did about it gives your children the reasoning, not just the account balances. Conversations fade. Documentation compounds.

Frequently asked questions

Is MAGI shown on my W-2?

No. A W-2 shows wages (box 1), Social Security wages (box 3) and Medicare wages (box 5), but MAGI is figured on your tax return. Box 1 is the right starting point because it already excludes pre-tax 401(k), health premiums and dependent care FSA money. Add investment income from your 1099s, subtract any above-the-line adjustments, and you have a close estimate of AGI, which is usually your MAGI.

Is MAGI for ACA subsidies the same as for a Roth IRA?

No. ACA MAGI adds tax-exempt interest, nontaxable Social Security and excluded foreign income to AGI, while Roth MAGI adds back items like the traditional IRA deduction and student loan interest and subtracts Roth conversion income. Families with employer health coverage generally do not use the ACA test, but it can matter during a gap between jobs or a sabbatical.

Does a Roth conversion raise MAGI?

It raises AGI, and therefore MAGI for the NIIT, the SALT cap and the Child Tax Credit. Of the tests in this guide, it is subtracted only for the Roth IRA contribution test. In a backdoor Roth, where the traditional IRA contribution was nondeductible and converted quickly, the taxable amount is usually small if you hold no other pre-tax IRA money, so the effect on MAGI is minor. Pre-tax IRA balances bring the pro-rata rule into play and can make more of the conversion taxable.

Next step

Pull last year’s return, find AGI, and list which of the five tests above you were within $50,000 of. If none, stop worrying about MAGI and focus on 401(k), HSA and timing of share sales. If you want a second set of eyes on how your RSUs, accounts and state move these numbers, our tax management and retirement and employee benefits teams start with a Tax & Wealth Assessment.

This is general education, and the right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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