metrics explained

Pre-tax income vs Taxable income: What's the Difference?

Pre-tax income and taxable income both refer to the money earned by an individual in a year. The main difference between the two is that pre-tax income is the total amount of money earned before taxes are taken out, while taxable income is the amount of money earned after taxes have been deducted.

Pre-tax income

Pre-tax income is the total amount of money earned in a year, before any taxes are taken out. This includes money earned from employment, investments, and other sources. The amount of pre-tax income you earn in a year will affect the amount of taxes you owe.

Taxable income

Taxable income is the amount of money earned in a year after taxes have been deducted. This is the amount of money on which you will be taxed. The amount of taxable income you have will affect the amount of taxes you owe.

How is pre-tax income taxed?

Pre-tax income is taxed at the marginal tax rate. This is the rate at which the last dollar you earn is taxed. The marginal tax rate is based on your tax bracket. The tax bracket you fall into is determined by your taxable income.

How is taxable income taxed?

Taxable income is taxed at the effective tax rate. This is the rate at which your total taxable income is taxed. The effective tax rate is lower than the marginal tax rate because it takes into account the taxes you've already paid on your pre-tax income.

What is the difference between pre-tax income and taxable income?

The main difference between pre-tax income and taxable income is that pre-tax income is the total amount of money earned before taxes are taken out, while taxable income is the amount of money earned after taxes have been deducted. Pre-tax income is taxed at the marginal tax rate, while taxable income is taxed at the effective tax rate.

Upgrade your financial models

Get started with Causal today.
Build models effortlessly, connect them directly to your data, and share them with interactive dashboards and beautiful visuals.