Taxable Income: Is it Income Tax Paid?

Taxable income is not the same as income tax paid. The income tax paid is the amount that an individual pays by April 15th of every year on their reported earnings. The income tax paid reflects the net tax on the reported income. A net tax reflects the gross amount of income that is usually referred to as taxable income less deductions and credits that the filer is allowed.

Taxable Income is Not Income Tax Paid

When looking at the amount of taxes that a person pays as income tax, their allowances and adjustments made in order to determine the true amount o taxable income. Income, as received by an employee, has 3 components:gross, adjusted and net.  

• The gross income is the amount of total income earned by an individual.

• Income includes wages and salaries from an employer, as well as earnings from other income sources such as investments. 

• A person’s gross income allows for certain deductions. Once the adjustments are made the gross income is called AGI, or adjusted gross income. From the AGI, a person applies any credits that reduces the taxable income amount that is subject to one of the table rates. Then, we have the net net, which is taxable.