You have been asked by the payroll manager to create a memo

You have been asked by the payroll manager to create a memo explaining gross pensionable/taxable income and net taxable income for the junior payroll professionals in the department. They are having difficulties distinguishing between the two. Your summary will assist them with this learning curve.

Solution

Gross pensionable income/ Taxable income is the total income of a person from all sources for a financial year from which the tax exemptions are not removed for tax consideration. In US generally net taxable income is 80% of gross taxable income.
Net taxable income is arrived by subtracting Gross taxable income with deductions and exemptions on insurance, pension funds investment, medical expenses, mortgage payments, etc.
Taxes are calculated on net taxable income and not gross taxable income.

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