Temporary income determines whether you will have to pay federal income tax on a portion of your Social Security benefits. Temporary income is defined as your adjusted gross income plus half of your Social Security benefits, plus any taxable income you received during the tax year. Temporary income is compared against certain thresholds to determine if any of your Social Security benefits will be subject to federal tax. You may have to pay taxes on 50% to 85% of your benefits, depending on how much your temporary income exceeds these thresholds. The thresholds vary between married couples and single individuals to reflect additional earnings.
How does temporary income work?
The IRS uses temporary income to determine whether you will have to pay federal income tax on a portion of your Social Security benefits. This income will be compared against certain thresholds established by the Internal Revenue Code after determining how much it is. You may have to pay taxes on your Social Security benefits if your temporary income exceeds these thresholds or limits for your tax filing status:
- $25,000 if you are single, head of household, or a qualifying widow/widower, or married but filing separately and lived apart from your spouse for the entire tax year.
- $32,000 if you are married and filing jointly.
- $0 if you are married and filing separately and lived with your spouse at any time during the tax year.
Example of temporary income
You can start with your gross income to calculate your temporary income. This includes all income you earned during the tax year from wages, pensions, and self-employment. You will then subtract any allowable adjustments to this income, which are shown on Schedule 1 (Form 1040) for 2022 that you will file with your tax return in 2023. This will tell you your adjusted gross income.
Next, add any taxable income you received. This may include taxable interest from certain U.S. savings bonds and foreign earned income. Lastly, add 50% of any Social Security benefits and Tier 1 Railroad Retirement benefits you received during the tax year.
Note: The total amount of your Social Security benefits will be shown in box 5 of Form SSA-1099, which you should receive from the Social Security Administration in January of the preceding year. For example, you will receive Form SSA-1099 in January 2023 if you received benefits in 2022.
Let’s say you received $5,000 in Social Security benefits, $12,500 in wages because you still work part-time, and $6,000 in investment earnings. You would add these three figures together to arrive at your temporary income: $2,500 (half of your benefits) + $12,500 + $6,000 for a total of $21,000.
How to calculate taxes on your temporary income
You need to compare 50% of the benefits you received to 50% of the temporary income that exceeds the thresholds set by the IRS. You will pay tax on the lesser amount. It gets more complicated if your temporary income exceeds a second threshold: you may have to pay taxes on up to 85% of your benefits. Here’s how that works:
Temporary income thresholds for single individuals:
- Less than $25,000: No taxable Social Security benefits.
- $25,000 to $34,000: The lesser of a) 50% of benefits or b) 50% of temporary income over $25,000 (up to $4,500).
- More than $34,000: The lesser of a) 85% of benefits or b) 85% of temporary income over $34,000 plus the amount from the box above.
Thresholds
Provisional Income for Married Couples:
- Less than $32,000: No Social Security benefits are taxable.
- From $32,000 to $44,000: The lesser of a) 50% of benefits or b) 50% of provisional income over $32,000 (up to $6,000).
- More than $44,000: The lesser of a) 85% of benefits or b) 85% of provisional income over $44,000 plus the amount from the section above.
You will pay tax on the lesser of 85% of your provisional income or 85% of your Social Security benefit if you file a married filing separately return and lived with your spouse at any time during the tax year. But in any case, you will not be required to pay income tax on 100% of your benefits, as you will on retirement income or income you receive later due to your current job.
Note: These income thresholds have not been adjusted for inflation since their inception in 1984, although the taxable portions of benefits were increased to 50% and 85% under the provisions of the Omnibus Budget Reconciliation Act of 1993.
How to Pay Taxes on Your Benefits
The complexities of these calculations, but the IRS provides a worksheet for Social Security benefits to help you figure your provisional income and the proper tax rate in the 2022 1040 and 1040-SR instructions, the return you will file in 2023.
Note: Most tax preparation software will calculate your provisional income and any resulting tax for you. A trusted tax professional can do this as well and may suggest tax planning measures to help you avoid having excess provisional income in future years.
You can ask the Social Security Administration to withhold taxes from your benefits if you are concerned that your provisional income will put you over the thresholds, or you can withhold additional taxes from other sources like your pension or wages. You can also choose to send quarterly tax payments. This can help you avoid owing a large amount when you file your return.
Remember that any “unexpected” income will definitely push you over the provisional income limits. This type of income could result from selling stocks or starting to take required minimum distributions from retirement accounts due to your age.
Frequently Asked Questions (FAQs)
What if I did not receive an SSA-1099 form?
You can get a copy online from the Social Security Administration’s website. It is sent out every January, but it may be delayed or lost in the shuffle if you moved or changed your address in any way. You will need to create an account with Social Security and then go to “Replacement Documents.”
What if I only collected Social Security benefits and did not have any other forms of income?
Your provisional income will be half of what you collected in Social Security benefits or first-tier railroad retirement benefits.
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Sources:
- Internal Revenue Service. “Publication 915 Social Security and Equivalent Railroad Retirement Benefits.”
- Internal Revenue Service. “Most Frequently Asked Questions About Social Security Income.”
- Congressional Research Service. “Social Security: Taxing Benefits.”
- Social Security Administration. “Research Memorandum No. 12: Taxing Social Security Benefits.”
- Congressional Research Service. “Social Security: Taxing Benefits.”
Source: https://www.thebalancemoney.com/what-is-provisional-income-5200257
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