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.