Final answer:
Before applying income taxes, amounts such as Social Security and Medicare taxes are subtracted from gross income to arrive at the adjusted gross income, which is then reduced by standard or itemized deductions to determine taxable income.
Step-by-step explanation:
Before applying income taxes, certain amounts are subtracted from the gross pensionable or taxable income. These include deductions such as the Social Security and Medicare taxes, which are 6.2% and 1.45% of gross income respectively. Additionally, there could be pre-tax contributions to retirement accounts, health savings accounts, among others. After subtracting these deductions, along with any exemptions or standard or itemized deductions from the gross income, we get the adjusted gross income (AGI). The AGI is then further reduced by either the standard deduction or itemized deductions (whichever is applied) to arrive at the taxable income. After determining the taxable income, the applicable tax rate is applied to calculate the income tax owed.