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taxable income

Taxable income is the amount of income subject to tax after subtracting all allowable deductions from an individual’s or business’s gross income . In U.S. tax law, taxable income is calculated by taking adjusted gross income (AGI) and then subtracting either the standard deduction or itemized deductions , along with any other deductions permitted by law. AGI is not the same as taxable income; it is an intermediate figure used in the calculation. After taxable income is determined, a taxpayer may still apply exemptions or tax credits to reduce the total tax owed.

[Last reviewed in August of 2025 by the Wex Definitions Team
] 

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