No, traditional financial aid like tax-exempt grants and scholarships is generally not included in Modified Adjusted Gross Income (MAGI) because MAGI starts with your Adjusted Gross Income (AGI) and only adds specific types of non-taxable income, such as non-taxable Social Security benefits. However, any financial aid that is considered taxable income, such as money received for work-related expenses, would be included in your AGI and thus your MAGI.
What is included in MAGI?
MAGI is a figure based on your tax return used to determine eligibility for things like Medicaid, the Children's Health Insurance Program (CHIP), and health insurance premium tax credits through the Health Insurance Marketplace. To calculate your MAGI, you start with your Adjusted Gross Income (AGI) from your tax return and add back certain specific types of income: Untaxed foreign income, Non-taxable Social Security benefits, and Tax-exempt interest.
What is typically NOT included in MAGI?
- Grants and scholarships: Most grants and scholarships are considered non-taxable income and therefore are not added to your AGI to get your MAGI.
- Student loans: These are not considered income for MAGI purposes.
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Gifts and inheritances: These are not typically counted as income for MAGI calculation.
Wha could be included?
- Taxable portions of grants/scholarships:
- If a scholarship or grant is used for non-educational expenses (like room and board, beyond what is allowed), the taxable portion would be included in your income.
- If financial aid is in the form of wages or money given for work-related expenses, it would be considered taxable income and included in your MAGI.
How financial aid affects MAGIFor financial aid to be included in Modified Adjusted Gross Income (MAGI), it must first be considered taxable income. The taxability of financial aid, including scholarships and grants, depends on its specific use.Taxable financial aidAny portion of a scholarship, fellowship, or grant used for non-qualified expenses is considered taxable income. These funds will increase your Adjusted Gross Income (AGI) and, consequently, your MAGI. Non-qualified expenses include:
- Room and board
- Travel
- Health insurance
- Optional equipment
Non-taxable financial aidScholarships and grants are not considered taxable and are excluded from your MAGI if they meet all of the following conditions:- You are a degree candidate at an eligible educational institution.
- The funds are used only for "qualified education expenses," such as tuition, fees, books, and required course supplies.
Student loansStudent loans are not included in your MAGI. Since they are borrowed money that must be repaid, the IRS does not count them as income.Work-study incomeEarnings from a federal work-study program are fully taxable and must be reported as wages on your tax return. This income is included in your AGI and MAGI.
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