What type of income is subject to federal income tax?

Includable income refers to all the income that is subject to federal income tax according to the Internal Revenue Code. This encompasses various forms of earnings, such as wages, salaries, tips, interest, dividends, rental income, and business profits. Essentially, includable income is everything that is not explicitly exempt from taxation and is required to be reported on your tax return.

In contrast, excludable income pertains to certain types of income that are not subject to federal income tax and therefore do not need to be reported. Non-taxable income is similar in that it represents earnings not subject to taxation, such as certain gifts or inheritances. Deferred income is income that is earned but not taxed until a later date, like contributions to a retirement account. None of these types of income directly represent what is subject to immediate federal income tax, reinforcing the correctness of includable income as the answer.