What documentation should taxpayers keep to prove non‑taxable income and MAGI calculations?
Executive summary
Modified adjusted gross income (MAGI) starts with the AGI on Form 1040 and then adds back specific nontaxable items — chiefly untaxed foreign income, non‑taxable Social Security benefits and tax‑exempt interest — so documentation must prove both the AGI and each of those add‑backs [1] [2] [3]. Keeping the core tax forms (Form 1040 and Schedule 1) plus the source documents that feed the non‑taxable items is the clearest path to substantiating MAGI for subsidies, eligibility determinations, or audits [1] [4].
1. What MAGI is and why paperwork matters
MAGI is not a single line on the return but a calculated figure that begins with the AGI on Form 1040 (line 11) and adds defined nontaxable items; it is used by the Marketplace, Medicaid/CHIP rules, Roth and IRA limits and other programs, so precise documentation of both AGI and the items added back is essential to prove eligibility or respond to requests [1] [5] [6].
2. Keep the core tax return pages and Schedule 1 — the anchor documents
The foundational documents to retain are complete copies of the filed Form 1040 (showing AGI on line 11 and Social Security reporting on lines 6a/6b) and Schedule 1, because MAGI calculations for many programs only permit the Schedule 1 adjustments to be subtracted and agencies will recon with those pages (Form 1040 line references) when they validate or reconstruct MAGI [1] [3] [4].
3. Non‑taxable Social Security and related proof
When MAGI requires adding non‑taxable Social Security benefits, the filed Form 1040 shows the amounts (line 6a minus 6b) and taxpayers should keep the Social Security benefit statements and any SSA‑1099 or similar year‑end notices that show gross benefits received to document the figure used in MAGI (Form 1040 reporting guidance cited on how to count non‑taxable Social Security) [3] [1].
4. Tax‑exempt interest and investment records
Tax‑exempt interest that must be added to AGI for MAGI is shown on Form 1040 (line 2a) and is typically supported by 1099‑INT or brokerage year‑end statements; retaining those issuer statements and 1099s that report tax‑exempt interest makes the addition transparent and auditable (Form 1040 line citation and general MAGI/investment context) [3] [7] [8].
5. Foreign earned income and territory exclusions — forms to save
If foreign earned income or housing exclusions are involved, the IRS identifies Form 2555 (lines cited) and territory exclusion forms (Form 4563 and relevant publications for Puerto Rico/American Samoa) as the primary paperwork to document excluded foreign or territory income that must nevertheless be considered when computing MAGI [3].
6. Dependents, parents’ elections and less obvious add‑backs
Certain family or dependent elections such as Form 8814 (Parents’ Election to Report Child’s Interest and Dividends) and other forms that change what is reported for dependents can alter MAGI calculations; taxpayers should keep filed copies of these elections and the supporting 1099s so the dependent‑level MAGI can be reconstructed if needed [3].
7. Self‑employment, wages and other income streams — use the annual return and supporting ledgers
For self‑employment or business income, agencies treating MAGI as a budgeting methodology will rely first on the annual tax return and the schedules that feed it (Schedule C, Schedule SE, K‑1s), so maintaining tax returns plus underlying ledgers, profit/loss statements, Forms 1099 and bank records is the practical way to prove how net self‑employment income entered AGI and therefore MAGI (annual return as primary document for self‑employment) [9] [4].
8. Records retention, disputes and an audit‑ready checklist
Because MAGI rules are applied differently across programs and only subtract Schedule 1 adjustments for many Marketplace determinations, retain the filed Form 1040, Schedule 1, Forms 1099 (INT, MISC/NEC), SSA statements, Form 2555/4563, Form 8814 and brokerages/end‑of‑year statements for at least three years and longer if specific program rules require it; those documents let officials or tax advisors reproduce AGI and each MAGI add‑back rather than guess from incomplete data (Schedule 1 subtraction limitation and program use of MAGI) [4] [1].