Provisional Income

AAA

DEFINITION of 'Provisional Income'

The level of income that is used to determine whether a taxpayer is liable for tax on his or her Social Security benefits, and by how much. Provisional income is calculated by making certain adjustments to the taxpayer's gross income.

The formula for determining provisional income is as follows:

Provisional income = gross income + tax-free interest + 50% of Social Security benefits + any tax-free fringe benefits and exclusions - adjustments to income (except for the student loan deduction, tuition and fees deduction or domestic production-activities deduction)

INVESTOPEDIA EXPLAINS 'Provisional Income'

Provisional income is calculated on Worksheet 34-1, unless the taxpayer is an active participant in a qualified plan and also has made or intends to make deductible contributions to a Traditional IRA for the year.

If the taxpayer's provisional income exceeds a certain base amount, then part of the taxpayer's Social Security benefits may become taxable.

RELATED TERMS
  1. Employee Benefits Security Administration ...

    A division of the Department of Labor (DOL) charged with enforcing ...
  2. Accident And Health Benefits

    Fringe benefits provided to employees for sickness, accidental ...
  3. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  4. Taxable Income

    The amount of income that is used to calculate an individual's ...
  5. Social Security

    A United States federal program of social insurance and benefits ...
  6. Modified Adjusted Gross Income ...

    The amount of income that determines how much of an individual's ...
Related Articles
  1. How Much Social Security Will You Get?
    Retirement

    How Much Social Security Will You Get?

  2. Avoid The Social Security Tax Trap
    Taxes

    Avoid The Social Security Tax Trap

  3. 10 Common Questions About Social Security
    Retirement

    10 Common Questions About Social Security

  4. Introduction To Social Security
    Retirement

    Introduction To Social Security

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center