Provisional Income

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)

BREAKING DOWN '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. Social Security

    A United States federal program of social insurance and benefits ...
  2. Taxable Income

    The amount of income that is used to calculate an individual's ...
  3. Employee Benefits Security Administration ...

    A division of the Department of Labor (DOL) charged with enforcing ...
  4. Modified Adjusted Gross Income ...

    The amount of income that determines how much of an individual's ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Accident And Health Benefits

    Fringe benefits provided to employees for sickness, accidental ...
Related Articles
  1. Taxes

    Avoid the Social Security Tax Trap

    Government benefits can cost you big money! Know the income thresholds before you file.
  2. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  3. Retirement

    10 Common Questions About Social Security

    Find out everything you need to know about this program.
  4. Retirement

    How Much Social Security Will You Get?

    You've been paying in for years - now it's time to find out what the system owes you.
  5. Options & Futures

    Retiring Early: How Long Should You Wait?

    Maximize your Social Security benefits by choosing when you retire.
  6. Taxes

    Taxes: H&R Block Vs. TurboTax Vs. Jackson Hewitt

    There are more and more tax services to help ease the pain of filing income taxes. Here's our take on three of the biggest.
  7. Taxes

    Confused About Estimated Tax Deadlines for 2016?

    If you run a business or have investment income, pay attention to this year's estimated tax deadlines. Here are the details, and what's new for 2016.
  8. Taxes

    Tax-Saving Advice for IRA Holders

    Be informed about benefits and deductions that may apply to you and avoid costly mistakes on your return.
  9. Taxes

    Explaining Nanny Tax

    A nanny tax is a federal tax imposed on people who hire household help.
  10. Taxes

    10 States with Highest Income Taxes

    Find out who is actually paying the most state taxes as a percent of their income. California and New Jersey are not in the top 10.
RELATED FAQS
  1. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  2. How Long Should I Keep My Tax Records?

    The Internal Revenue Service (IRS) has some hard and fast rules regarding how long taxpayers should keep their tax records. As ... Read Full Answer >>
  3. Does the IRS charge interest on penalties?

    The Internal Revenue Service (IRS) charges interest on any overdue taxes owed, but it does not charge interest on penalties. ... Read Full Answer >>
  4. Are tax shelters legal in Canada?

    Most tax shelters are legal in Canada. However, there have been illegal tax shelter scams that the Canada Revenue Agency ... Read Full Answer >>
  5. Can the IRS garnish your tax refund?

    Federal law states that only state and federal agencies, such as the Internal Revenue Service (IRS), are allowed to garnish ... Read Full Answer >>
  6. What is a 409A nonqualified deferred compensation plan?

    A 409A nonqualified deferred compensation plan defers a portion of an employee's compensation to a future date. The compensation ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center