Taxable Income – The monetary base from which you are imposed a tax. Taxable income for the federal government is usually any income received over the course of the year (gross income) less deductions (such as a federal allowance or 401k contribution) and expenses as deemed allowable by the IRS. Taxable income at the state level is determined by the state’s taxing authority and can differ from the federal government and from state to state.
Simple example: John has a gross income of $50,000/year he contributes $5,000/year to his 401(k) retirement account and has claimed one federal allowance on his W4. In this case John’s taxable income would be $41,300.
Gross Income: $50,000
Less 401(k): $5,000
Less Allowance: $3,700
Taxable Income: $41,300 (this is the number you would use when referencing the IRS withholding tables to determine withholding)
Bottom line, taxable income is the number used to calculate the taxes you owe, whether it is to the federal, state, or local government.
I'm Bad at Spending Money 