What Is Provisional Income?
Provisional income is an IRS threshold above which social security income is taxable. The base, from §86 of the Internal Revenue Code (IRC), triggers the taxability of social security benefits, requiring its inclusion in gross income tax payment on excess amounts. Provisional income is calculated using the recipient’s gross income, tax-free interest, and 50% of their social security benefits.
- Provisional income levels determine the level in which social security income can be taxed.
- The base for provisional income is greater for those filing joint returns.
- Provisional income levels are calculated with gross income, tax-free interest, and half of the recipient's social security amount.
- Provisional income is also referred to as combined income by the IRS or SSA.
- The IRS provides Worksheet A accompanying Publication 915 to help taxpayers estimate whether they pay taxes based on provisional income amounts.
Understanding Provisional Income
For the 2021 tax year, 15% of all social security benefits remain tax-free. The remaining 85% is also tax-free unless the taxpayer has provisional income above a base amount set for the taxpayer’s filing status. Ultimately, the taxable amount depends on how much the provisional income exceeds the base amount and the percentage or percentages applicable to determine it.
Provisional income is more commonly referred to as "combined income" by the Social Security Administration.
Calculating Provisional Income
Although IRC §86 does not use the term “provisional income,” it is commonly used to refer to this sum. To calculate provisional income, the taxpayer must add together their gross income, tax-exempt interest and one-half of the taxpayer’s social security benefits.
To determine provisional income, the taxpayer must compute their gross income without social security benefits, or the amount of income they collect before drawing social security. Then, they should add any tax-free interest they receive from investments, and finally, add one-half of social security benefits reported on Form 1099.
Provisional income falling below the base amount established by filing status is untaxed. Taxes are only due on amounts above the base amount shown. Depending on filing status, and the amount of excess provisional income, up to 85% is taxable as gross income at the same rate as regular income.
Any money taken from pre-tax accounts (whether it's an IRA, 401(k), or other retirement vehicle) will be counted towards a taxpayer's provisional income.
Provisional Income Thresholds
Different filing statuses have different provisional income brackets that dictate that taxable thresholds for social security benefits. Below are the tables relating to 2021 taxable income.
Provisional Income Limits - Individual Taxpayer
|Provisional Income||Taxable Social Security Benefits|
|Less than $25,000||$0|
|$25,000 up to $34,000||Less of 50% of benefits OR 50% of provisional income above $25,000|
|Greater than $34,000||Lesser of 85% of benefits OR 85% of provisional income above $34,000 plus the amount from the bracket above.|
Provisional Income Limits - Married Filing Joint Taxpayers
|Provisional Income||Taxable Social Security Benefits|
|Less than $32,000||$0|
|$32,000 up to $44,000||Lesser of 50% of benefits OR 50% of provisional income above $32,000|
|Greater than $44,000||Lesser of 85% of benefits OR 85% of provisional income above $44,000 plus the amount from the bracket above|
Example of Provisional Income Taxes
As an example, a single taxpayer with a provisional income between $25,000 and $34,000 would pay taxes on the lesser of either 50% of social security benefits or 50% of the difference between the provisional income and the base amount. If the same taxpayer has provisional income in excess of $34,000, the taxable percentage will increase to 85%.
In other words, for every $1 of provisional income over $25,000, 50¢ may be subject to federal income tax. This amount raises to 85¢ of every dollar for amounts over $34,000. However, if the single taxpayer’s provisional income were below $25,000, the taxable percentage of social security income would be 0%.
For example, let’s say a retiree has $20,000 of income from stocks and part-time employment and $4,000 a year in tax-free interest from municipal bonds. They also receive $24,000 a year in social security benefits (50% of that being $12,000). This retiree’s provisional income is thus $36,000, and that places them in the 85% tax bracket.
A detailed explanation of the taxation of social security benefits is available in the Internal Revenue Service (IRS) Publication 915, social security and Equivalent Railroad Retirement Benefits. The publication contains hyperlinks to blank worksheets on page 15 useful to accurately calculate the taxable portion of social security benefits.
What Portion of Social Security Is Taxable in 2022?
Social security benefits are not taxed up to a $25,000 provisional income threshold for individual taxpayers, while a portion of benefits may be taxable above this amount. The tax-free limit for married filing joint taxpayers for 2022 is $34,000.
What Is Provisional Tax?
Provisional tax is unrelated to provisional income. Provisional tax is a method of paying tax liabilities in advance to make sure that the tax payer is not burdened with a large tax debt at the end of the assessment. In this context, provisional tax is simply prepaid taxes to aid a taxpayer by spreading their liability over multiple periods.
Do Roth IRA Withdrawals Count as Combined Income?
No, Roth IRA withdrawals are not counted as income when calculating combined income. This is true whether either taxpayer withdrew retirement funds from a Roth IRA.
Is Combined Income Based on Gross Income or Net Income?
Most of a taxpayer's provisional income will come from its adjusted gross income. Non-taxable interest and half of the taxpayer's benefits are then added to the gross income amount. Net income is not explicitly factored into the provisional income calculation.
The Bottom Line
Provisional income is a calculated figure used to determine whether a portion of social security benefits are taxable. Each taxpayer can calculate their provisional income by combining their adjusted gross income, non-taxable interest, and half of their social security benefits. Should this amount exceed certain IRS thresholds, the taxpayer may be liable for additional income taxes.
Correction—May 25, 2022: This article was updated from a previous version to make clear the income tax to be paid by a single taxpayer earning a provisional income between 25,000 and 34,000.
Internal Revenue Service. "Publication 915: Social Security and Equivalent Railroad Retirement Benefits," Page 6.
Social Security Administration. "Income Taxes and Your Social Security Benefit."
Internal Revenue Service. "Publication 915: Social Security and Equivalent Railroad Retirement Benefits," Pages 2-3.
Internal Revenue Service. "Publication 915: Social Security and Equivalent Railroad Retirement Benefits," Page 15.