Taxable Income
Taxable income is the portion of your income that is actually subject to income tax. It equals adjusted gross income (AGI) minus either the standard deduction or itemised deductions. Federal income tax brackets are applied to this number — not your gross salary.
$75,000 salary − $15,000 standard deduction = $60,000 taxable income. Tax ≈ $8,114 at 2025 rates.
Most people owe far less tax than they would if taxed on gross income, because the standard deduction ($15,000 for a single filer in 2025) is subtracted first. Someone earning $75,000 has taxable income of $60,000 — and their first $11,925 is taxed at only 10%.
Pre-tax 401(k) and HSA contributions reduce taxable income further. A $75,000 earner who contributes $10,000 to a 401(k) and $4,300 to an HSA has taxable income of only $60,000 − $14,300 = $45,700 — saving roughly $3,146 in federal income tax.
Not all income is taxable: municipal bond interest is federally tax-free, and Roth IRA withdrawals in retirement are not included in taxable income. Understanding what is and isn't taxable is as valuable as knowing the bracket rates.
Put this into practice with our free calculator:
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- Adjusted Gross Income (AGI)
- Adjusted gross income (AGI) is your total gross income minus specific 'above-the-line' deductions such as student loan interest, IRA contributions, and self-employment taxes. AGI is the starting point for calculating taxable income and determines eligibility for many tax credits and deductions.
- Standard Deduction
- The standard deduction is a fixed amount the IRS lets US taxpayers subtract from gross income before calculating tax, without itemising individual deductions. For 2025: $15,000 (single) or $30,000 (married filing jointly).
- Marginal Tax Rate
- Your marginal tax rate is the rate you pay on the last dollar of income earned — the rate of the highest tax bracket you fall into. It is not the rate applied to your entire income.
- Tax Withholding
- Tax withholding is the amount your employer deducts from each paycheck and remits directly to the IRS on your behalf. It is an advance payment toward your annual tax liability — not an extra tax. If too much is withheld, you get a refund; too little, and you owe at filing.