Taxable Income

Taxable income is any earnings such as wages, interest and dividends that are subject to taxation. When filling out a tax return, taxable income refers to the amount of earnings after subtracting adjustments, deductions and exemptions. This amount will be used to calculate your taxes owed.

Tax Bracket

There are seven different tax brackets which hold different income levels and rates of taxations. The brackets range from 10% to 39.6%. Your highest dollar of income determines the tax bracket in which you fall. Your income can be taxed at different brackets, and some, such as the earnings subject to standard or itemized deductions and personal or dependent exemptions, may not be taxed at all.

Tax-exempt interest

Interest can be exempt from taxes when it is incurred from state or municipal bonds. You have to report the income you earned on your tax return, but it will not be taxed. It’s important to take note that even though the interest is exempt from regular taxation, it may be taxed by the Alternative Minimum Tax.