Your provisional income is an amount that determines whether you’ll have to pay federal income tax on a portion of your Social Security benefits. The greater your provisional income, the more likely it is that your benefits will be subject to income tax.
This rule has been in place since 1984, although it’s not precisely defined in the Internal Revenue Code (IRC). About half of all Americans have sufficient provisional income to have to pay tax on at least some of their benefits, according to the Congressional Research Service.
Definition and Examples of Provisional Income
Provisional income is a tool used by the IRS to determine whether you’ll pay federal income tax on part of your Social Security benefits. Your provisional income is a combination of your adjusted gross income, any tax-exempt income, and half of your Social Security or Railroad Retirement Tier I benefits.
To calculate your provisional income, start with your gross income, which includes all income you earned during the tax year from wages, dividends, pensions, and self-employment. Subtract any allowable adjustments to this income, which appear in Part II of the 2020 Schedule 1, to get your adjusted gross income.
Next, add any tax-exempt income such as tax-exempt interest from certain U.S. savings bonds and foreign earned income. Finally, add 50% of any Social Security and Railroad Retirement Tier I benefits you received during the tax year.
The total amount of your Social Security benefits will appear in box 5 of Form SSA-1099, which you should receive from the Social Security Administration each January for the previous year. For example, if you receive benefits in 2021, you’ll receive Form SSA-1099 in January 2022.
For example, let’s say you collected $5,000 in benefits, $12,500 in wages because you’re still working part-time, and $6,000 in dividend income from investments. To calculate your provisional income, you’d add those three numbers together: $2,500 (half your benefits) + $12,500 + $6,000 for a total of $21,000.
- Alternate names: Combined income, modified adjusted gross income
How Provisional Income Works
Once you have your provisional income, you’ll compare it to certain thresholds set by the IRC. You could pay taxes on your Social Security benefits if your provisional income exceeds these thresholds or limits for your filing status:
- $25,000 if you’re single, head of household, a qualifying widow(er), or married filing separately and lived apart from your spouse for the entire tax year.
- $32,000 if you’re married and filing a joint tax return.
- $0 if you’re married, filing a separate return, and lived with your spouse at any time during the tax year.
If your provisional income exceeds these thresholds, you’ll compare 50% of your benefits amount to 50% of your provisional income that exceeds the threshold. You’ll pay tax on whichever amount is smaller. It gets more complicated if your provisional income exceeds a second threshold: You’ll pay tax on up to 85% of your benefits. Here’s how it breaks down:
|Provisional income thresholds for single taxpayers|
|Provisional Income||Taxable Social Security Benefits|
|Less than $25,000||None|
|$25,000 to $34,000||Lesser of a) 50% of benefits or b) 50% of provisional income above $25,000 (up to $4,500)|
|More than $34,000||Lesser of a) 85% of benefits or b) 85% of provisional income above $34,000 plus the amount from the box above|
|Provisional income thresholds for married taxpayers|
|Provisional Income||Taxable Social Security Benefits|
|Less than $32,000||None|
|$32,000 to $44,000||Lesser of a) 50% of benefits or b) 50% of provisional income above $32,000 (up to $6,000)|
|More than $44,000||Lesser of a) 85% of benefits or b) 85% of provisional income above $44,000 plus the amount from the box above|
You’ll pay tax on the lesser of 85% of your provisional income or 85% of your Social Security benefits if you file a separate married return and you lived with your spouse at any point during the tax year.
But in no case would you have to pay income tax on 100% of your benefits, such as you would on pension income or income you receive because you’re still working.
These income thresholds have not been adjusted for inflation since their inception in 1984, although the taxable portions of benefits were increased to 50% and 85% under the terms of the Omnibus Budget Reconciliation Act of 1993.
The federal government directs taxes paid on Social Security benefits to the Old Age and Survivors Insurance Trust Fund, the Disability Insurance Trust Fund, and the Railroad Retirement System, depending on the source of your benefits. Taxes resulting from the 85% rule go toward funding the Medicare Hospital Insurance Trust Fund.
Requirements for Reporting Taxable Benefits
These computations are complicated, but the IRS provides a Social Security benefits worksheet to help you calculate your provisional income and your applicable tax percentage in its 1040 and 1040-SR Instructions. The taxable amount of your benefits will appear on line 18 when you complete the worksheet, and this total is transferred to line 6b of your Form 1040 tax return.
Most tax preparation software will calculate your provisional income and any resulting tax for you. A reputable tax professional would as well, and could suggest tax-planning measures to help you avoid having too much provisional income in subsequent years.
If you’re concerned that your provisional income will put you over the thresholds, you can ask the Social Security Administration to withhold taxes from your benefits, or have taxes withheld from other sources, such as your pension or additional taxes from wages. You can also choose to send in quarterly tax payments, which can help you avoid owing a large lump sum when you file your return.
Keep in mind that any “windfall” income will almost certainly push you over the provisional income limits. This type of income might come from selling stocks or starting to take required minimum distributions from retirement accounts due to your age.
- Your provisional income is your adjusted gross income plus half your Social Security benefits, plus any tax-exempt income you received over the course of the tax year.
- Your provisional income is compared to certain thresholds to determine whether any of your Social Security benefits will be taxable at the federal level.
- You could end up paying taxes on 50% to 85% of your benefits, depending how much your provisional income exceeds these limits.