Taxable income

Taxable income is the amount of money the IRS applies tax rates to, after subtractions. You begin with the income you received during the year, such as wages, interest, dividends and taxable gains from selling investments. Then you subtract deductions such as the standard deduction (an amount set by law for your filing status) or itemized deductions. What is left is your taxable income.

For example, a single filer with $50,000 in wages taking the standard deduction, $16,100 for 2026, has taxable income of $33,900. Tax is calculated on that figure, not on the $50,000.

Taxable income also sets the rate on long-term capital gains and qualified dividends. Pretax contributions to a workplace retirement plan lower your taxable income that year; the money is taxed when you withdraw it. It appears as one line on your federal return, Form 1040.