Taxable Income

Taxable income is the portion of your gross income that is subject to federal (and sometimes state or local) income tax after subtracting allowable deductions, such as the standard deduction or itemized deductions. It includes most types of income—wages, salaries, tips, investment gains, retirement distributions, and other earnings—unless a specific law exempts it. The IRS uses your taxable income to determine your tax bracket and calculate how much tax you owe in a given year.