Calculating Provisional Income
The first step in estimating any taxes you might
have to pay on your Social Security benefit is to
calculate your provisional income.
Provisional
income
is defined by the Internal Revenue
Service (IRS) as the sum of wages, taxable and
nontaxable interest, dividends, pensions, selfemployment and other taxable income plus
half (50 percent) of your annual Social Security benefits
A simple example......let's assume a single taxpayer has 14K of income and 22K of SS benefits.
Since 14+22/2=25K the Social Security income would not be taxed. Since 14K is less than the standard deduction for seniors there would be no tax due.
Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
Last edited by Arby on Sat Jun 19, 2021 11:03 am, edited 1 time in total.
Arby wrote: ↑Sat Jun 19, 2021 10:11 am
Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
Arby wrote: ↑Sat Jun 19, 2021 10:11 am
Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
The IRA contribution will go to line 6 of that worksheet and be subtracted.
The worksheet for Social Security taxation is on page 16 of Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Line 7 of the worksheet says to subtract adjustments to income. In fact, the example on page 8 shows a taxpayer subtracting a deductible IRA contribution when computing the provisional income.
Arby wrote: ↑Sat Jun 19, 2021 10:11 am
Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
The IRA contribution will go to line 6 of that worksheet and be subtracted.
The worksheet for Social Security taxation is on page 16 of Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Line 7 of the worksheet says to subtract adjustments to income. In fact, the example on page 8 shows a taxpayer subtracting a deductible IRA contribution when computing the provisional income.
Slight differences in the worksheets due to the American Rescue Plan Act of 2021, but either way the IRA contribution does affect the calculations.