Common Types of Taxable Income

There are several different types of taxable income that you will need to be aware of when you are filing your taxes. Many of these different types are taxed at different rates and calculated differently. Here are a few of the most common types of taxable income.

Wages and Salaries

The most common type of taxable income is related to wages and salaries. This is money that you make from working at your job. With this type of income, you are going to have to pay several different types of taxes. This income is going to be reported to you on a W-2 form. First of all, you will have to pay taxes to the federal government. The rate that you pay your federal taxes will depend on how much money you make. The amount of money that you make is going to put you into a certain tax bracket. In addition to paying federal income taxes, you are going to have to pay state taxes as well.

Besides paying regular state and federal taxes on your wages and salary, you are going to have to pay taxes to Social Security and Medicare as well. When you work for an employer, they are going to pay half of your Social Security and Medicare taxes for you.

Self-Employment

If you are self-employed, you will have to pay taxes as well. This type of income is going to come to you on a Form 1099 if you an independent contractor. The earnings from self-employment are going to be taxed at the same rate as those of wages and salaries. If you are self-employed, you are not going to be taxed the same way for Social Security and Medicare taxes. Instead, you are going to have to pay the self-employment tax. This amounts to the full tax rate for Social Security and Medicare instead of only paying half as you do when you are an employee. If you are paying self-employment taxes, you have to make quarterly tax payments to the IRS based on what you think you are going to owe. 

Interest

Another common type of taxable income is interest. Whenever you receive interest from a bank account or some other type of investment, you are going to have to pay taxes on it as if it were regular income. However, with this type of income, you are not going to have to pay Social Security or Medicare taxes. There are some types of interest that you can receive that will not be taxable. For example, if you invest in a municipal bond, you may not have to pay taxes on the interest that you receive.

Dividend Income

Dividend income is another common type of income that is taxable. Dividends are received by investing in stocks. Whenever a company has excess profit, they will sometimes distribute it to the shareholders in the form of a dividend. Most of the time, dividends are going to be taxed at your regular income tax rate. In some cases, you might pay a lower tax rate if the dividend is considered to be a qualified dividend.

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