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 taxability social security benefits requiring its inclusion in gross income tax payment on excess amounts.

For the 2017 tax year, fifteen percent (15%) of all social security benefits remain tax-free. The remaining eighty-five percent (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.

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 adjusted gross income (AGI), non-exempt interest and one-half of the taxpayer’s social security benefits.  

To determine provisional income, the taxpayer must compute their adjusted gross income without social security benefits, then add non-exempt interest, 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 eighty-five percent (85%) is taxable as gross income at the same rate as regular income. 

As an example, a single taxpayer with provisional income between $25,000 and $34,000 would pay taxes on the lesser of either fifty-percent (50%) of social security benefits or fifty-percent (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 eighty-five percent (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.

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 blank worksheets at page 15 useful to accurately calculate the taxable portion of social security benefits.