The U.S. has a progressive tax system. That means each level of income is taxed at a progressively higher rate. For the purposes of taxation, “income” typically includes any earnings, tips, commissions, dividends, alimony, capital gains, unemployment benefits, IRA distributions, and Social Security benefits received during the tax year.
Deductions are expenses that may be subtracted from your taxable income. Common deductions include student loan interest, medical and dental costs, property taxes, mortgage interest, and college tuition. Similar to deductions, tax credits reduce taxable income for certain groups of individuals, like first-time homebuyers and people caring for dependents.
Changes may occur in this area of law. The information provided is brought to you as a public service, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or substitute for the advice of a lawyer.