The Social Security Administration has estimated that as many as
What is provisional income?
Provisional income (PI) is a measure of income the IRS uses to determine what portion of your Social Security benefits can be taxed. The Social Security Administration refers to this as
If you have other income sources, such as wages, interest, dividends and more, your combined income may cross a threshold where the IRS begins to
How high can your provisional income be before Social Security benefits are taxed?
Any income that falls below the threshold amount established by your filing status is not taxed. Federal income taxes are only due on amounts above the threshold. Depending on your tax filing status and the amount of provisional income above the threshold, up to 85% of your entire Social Security benefit may be taxed at the same rate as regular income.
Filing as an individual means you are single, the head of household, a qualifying widow or widower, or are married and filing separately after living apart from your spouse for the entire tax year.
- If your total income is between $25,000 and $34,000, up to 50% of your benefits may be taxable.
- If your total income is more than $34,000, up to 85% of your benefits may be taxable.
Married and filing jointly
In this filing type, spouses combine their incomes to calculate provisional income.
- If your combined income is between $32,000 and $44,000, up to 50% of your benefits may be taxable.
- If your combined income is more than $44,000, up to 85% of your benefits may be taxable.
Married and filing separately
This status depends on whether or not you lived with your spouse during the tax year.
- If you lived apart during the entire year and are filing separately, then see "individual."
- If you lived with your spouse at any time during the tax year and are filing separately, your provisional income threshold is zero, which means up to 85% of your benefits may be taxable.
How do you calculate provisional income for Social Security tax?
To determine what portion of your Social Security benefits may be taxed, begin with your adjusted gross income (AGI). Then add any tax-exempt interest received from investments plus half of your Social Security benefits.
In short: PI = AGI + tax-exempt interest + (Social Security benefits x ½).
- AGI. The
IRS defines AGIas gross income minus adjustments to income. Gross income includes your wages, dividends, interest, capital gains, retirement distributions and business income as well as any other income. Potential adjustments may include items such as contributions to a retirement account, alimony payments or education expenses.
- Tax-exempt interest. This is interest from investments that don't incur taxes, such as municipal bonds. While you're not being taxed on this, it is included for purposes of calculating your provisional income.
- Social Security benefits. You'll only include half of your benefits in the calculation. You can look to the Social Security Benefit Statement you receive each January, which shows the total amount of benefits you received the previous year.
Provisional tax calculation example
Whether you file taxes as an individual or you file jointly, you may owe tax on Social Security benefits. For example, let's say your gross income from taxable sources other than Social Security is $22,000 and you earned $4,000 in tax-free interest from municipal bonds. Now assume you received $20,000 in Social Security benefits during the year. For the calculation, you'll divide that in half to arrive at $10,000.
To calculate provisional income, add $22,000 (your AGI) plus $4,000 (your tax-exempt interest) plus $10,000 (half your Social Security benefit). Your provisional income in this scenario would be $36,000.
Using that number, here's how your Social Security would be taxed with the following tax filing statuses:
- Single. Since $36,000 is more than the $34,000 threshold for single filers, you would owe income tax on up to 85% of your benefits.
- Married filing jointly. Since $36,000 is between $32,000 and $44,000, you would owe income tax on up to 50% of your benefits.
- Married filing separately (and you lived with your spouse in the tax year). The provisional income limit for this status is $0, so you would owe income tax on up to 85% of your benefits.
The bottom line
Many people end up owing taxes on their Social Security benefits. Depending on your income from other sources and your tax filing status, you could pay tax on up to 85% of your benefits. If you have questions about