What Is Taxable Income?
Taxable income is what remains after subtracting adjustments and either the standard or itemised deduction from gross income. It is the number tax brackets are applied to — and it is always smaller than your salary.
The three figures, in order
Gross income is everything you received that the tax code counts: wages, self-employment earnings, interest, dividends, capital gains, rents, most retirement distributions.
Adjusted gross income (AGI) is gross income minus specific adjustments — deductible retirement contributions, health savings account contributions, student loan interest and a few others. AGI is the figure most means tests and phase-outs are measured against.
Taxable income is AGI minus the standard deduction or your itemised deductions. This is the number the brackets apply to.
What is not taxable income
Employer-paid health insurance premiums, most gifts and inheritances, qualified Roth withdrawals, municipal bond interest at federal level, and the return of your own capital when you sell an asset are all excluded.
The distinction between a return of capital and a gain trips people up on investment sales: only the gain is income, not the whole sale price.
States define it differently
State taxable income is not the same number as federal taxable income. States that begin from federal AGI apply their own deduction, which is often far smaller. States that begin from federal taxable income inherit the federal deduction and then adjust.
This is why comparing state rates without comparing bases is misleading, and why every figure on this site is computed from each state’s own definition rather than a shared shortcut.