Browse Income Tax Basics

Income Tax Basics

Core calculation terms that move a return from income to taxable income, rates, and tax liability.

Income tax basics pages explain the main calculation chain that starts with income and ends with tax liability. If you are trying to understand how a return is built, this is the best place to start.

If rate language is the sticking point, read Tax Bracket, then Marginal Tax Rate, then Effective Tax Rate in that order.

If the bigger confusion is how a return moves from income to tax, read Gross Income, then Adjusted Gross Income, then Taxable Income, then Tax Liability.

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What This Section Covers

  • The difference between broad income measures and the narrower amounts used later in the return.
  • The difference between earned, unearned, ordinary, and preferentially taxed income.
  • The rate concepts that affect how additional income is taxed.
  • The calculation steps that connect income, deductions, and the final amount owed.
  • The special tax layers and benchmark rules that can change the return after the ordinary calculation starts.
  • The household and eligibility concepts that influence later credits and filing choices.

In this section

  • Adjusted Gross Income
    Adjusted gross income is gross income after certain allowed adjustments and is a key pivot point for later tax calculations.
  • Alternative Minimum Tax
    The alternative minimum tax is a parallel tax calculation that can increase tax when certain adjustments or preference items apply.
  • Capital Gain Rate
    The capital gain rate is the preferential rate structure used for long-term capital gains and qualified dividends.
  • Dependent
    Claimable-person status that can affect filing position, credits, and other household-based tax rules.
  • Earned Income
    Earned income is pay or self-employment income from work and drives many filing, credit, and payroll-tax rules.
  • Effective Tax Rate
    The effective tax rate measures total tax relative to income and shows the overall tax burden rather than the top marginal rate alone.
  • Exemption
    An exemption is a tax concept that removes or excludes a person, amount, item, or transaction from a particular tax rule or tax calculation.
  • Federal Poverty Line
    The federal poverty line is a household-income benchmark used in some tax-credit and health-coverage calculations.
  • Filing Requirement
    A filing requirement determines whether a taxpayer must file a federal return based on income, status, age, or special tax situations.
  • Gross Income
    Gross income is the broad starting measure of income before adjustments, deductions, and credits narrow the final tax result.
  • Kiddie Tax
    The kiddie tax is the rule that can tax a child's unearned income at the parents' rate once certain limits are exceeded.
  • Marginal Tax Rate
    The marginal tax rate is the rate that applies to the next dollar of taxable income within the current bracket.
  • Modified Adjusted Gross Income
    Modified version of AGI used to test eligibility, limits, and phaseouts for certain tax rules and benefits.
  • Net Investment Income Tax
    The net investment income tax is an additional tax on certain investment income for taxpayers above the applicable income thresholds.
  • Ordinary Income
    Ordinary income is income taxed at regular income-tax rates instead of preferential capital-gain rates.
  • Personal Exemption
    Personal exemption is the income-tax concept for an exemption amount tied to a taxpayer or qualifying person under the applicable law for the relevant tax year.
  • Provisional Income
    Provisional income is the special calculation used to determine whether Social Security benefits become taxable.
  • Qualified Business Income Deduction
    The qualified business income deduction can reduce taxable income for eligible owners of pass-through businesses.
  • Qualified Dividend
    A qualified dividend is a dividend that can receive long-term capital-gain rate treatment when the requirements are met.
  • Tax Bracket
    A tax bracket is a range of taxable income that is taxed at a particular marginal rate under the rate schedule.
  • Tax Liability
    Tax liability is the tax the return must cover before the final comparison with payments determines a refund or balance due.
  • Tax Table
    The tax table is the IRS lookup table that converts taxable income into regular income tax for many individual returns.
  • Taxable Income
    Taxable income is the amount left after relevant adjustments and deductions narrow the income that will actually be taxed.
  • Taxable Social Security Benefits
    Taxable Social Security benefits are the portion of benefits included in gross income when provisional income crosses the applicable thresholds.
  • Unearned Income
    Unearned income is income not derived from labor, such as interest, dividends, and many capital-gain items.
Revised on Friday, April 24, 2026