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$25,000 if you’re single, head of household, a qualifying widow(er), or married filing separately and you lived apart from your spouse for the entire tax year.$32,000 if you’re married and filing a joint tax return.$0 if you’re married, filing a separate return, and lived with your spouse at any time during the tax year.
An Example of Provisional Income
You would start with your gross income to calculate your provisional income. This includes all income you earned during the tax year from wages, dividends, pensions, and self-employment. Then you would subtract any allowable adjustments to this income, which appear in Part II of the 2022 Schedule 1 that you’ll file with your Form 1040 tax return in 2023. This will tell you your adjusted gross income. Next, add in any tax-exempt income you received. This might include tax-exempt interest from certain U.S. savings bonds and foreign earned income. Finally, add 50% of any Social Security and Railroad Retirement Tier I benefits you received during the tax year. Let’s say you collected $5,000 in Social Security benefits, $12,500 in wages because you’re still working part time, and $6,000 in dividend income from investments. You’d add those three numbers together to arrive at your provisional income: $2,500 (half your benefits) + $12,500 + $6,000 for a total of $21,000.
How To Calculate Taxes on Your Provisional Income
You must compare 50% of your benefits received to 50% of your provisional income that exceeds the thresholds established by the IRS. You’ll pay tax on whichever amount is less. It gets more complicated if your provisional income exceeds a second threshold: You could pay tax on up to 85% of your benefits. Here’s how it breaks down: The federal government directs taxes that are paid on Social Security benefits to the Old Age and Survivors Insurance Trust Fund, the Disability Insurance Trust Fund, and the Railroad Retirement System, depending on the source of your benefits. Taxes resulting from the 85% rule go toward funding the Medicare Hospital Insurance Trust Fund.
How To Pay Taxes on Your Benefits
These computations are complicated, but the IRS provides a Social Security benefits worksheet to help you calculate your provisional income and your applicable tax percentage in its 1040 and 1040-SR Instructions for tax year 2022, the return you’ll file in 2023. You can ask the Social Security Administration to withhold taxes from your benefits if you’re concerned that your provisional income will put you over the thresholds, or you can have extra taxes withheld from other sources, such as your pension or wages. You can also choose to send in quarterly tax payments. This can help you avoid owing a large lump sum when you file your return. Keep in mind that any “windfall” income will almost certainly push you over the provisional income limits. This type of income might come from selling stocks or starting to take required minimum distributions from retirement accounts due to your age.
