Question

Why is the difference between gross pay and taxable income important?

Answer 1

Q.1 Why is the difference between gross pay and taxable income important?

Answer : Gross pay refers to all the money your employer pays you before any deductions are taken out. It includes all overtime, bonuses, and reimbursements from your employer, and it does not account for such deductions as taxes, insurance, and retirement contributions.

Taxable income :is the amount of income used to calculate how much tax an individual or a company owes to the government in a given tax year. It is generally described as adjusted gross income (which is your total income, known as “gross income,” minus any deductions or exemptions allowed in that tax year). Taxable income includes wages, salaries, bonuses, and tips, as well as investment income and unearned income.

Following points are discribed and proved why difference between gross pay and taxable income important :

• Gross income is all income from all sources that isn't specifically tax-exempt under the Internal Revenue Code.
• Taxable income starts with gross income, then certain allowable deductions are subtracted to arrive at the amount of income you're actually taxed on.
• Tax brackets and marginal tax rates are based on taxable income, not gross income.
• Tax benefits create some type of savings for a taxpayer.
• Common types of tax benefits include deductions, credits, exclusions, and shelters.
• Individual and commercial taxpayers should stay abreast of any tax benefits they may be eligible for, in order to capitalize on their rightful tax savings.