What is gross income?
Gross income is money you earn from wages at a job, dividends and capital gains you can earn from owning stock, business and retirement income and other forms of income, including tips, rents and interest. Basically, gross income is the money you earn from all sources of income before taxes are taken out.
You may need to know your gross income if you want to apply for a loan or an apartment. Your gross income is also the starting basis for calculating how much you owe in federal taxes.
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How to calculate gross income
To figure out what your gross income is, simply add up all the different forms of income you have. For example, if you have only one W-2 job and no other income, your annual gross income equals your annual wages before taxes and deductions are applied. If you have multiple jobs and some investment gains, you’ll need to review all of your pre-tax wages and total capital gains for the year, and then add all of them together.
Good tax software can help you add up all your forms of income, from W-2 income to capital gains to dividends. For tax purposes, there are also some things that may not count as gross income, such as gifts or some types of inheritances, but see a tax pro to be sure.
Gross monthly income example
Say you have two jobs. If you receive a paycheck twice a month from your first job for $1,500 each (equaling $3,000 a month before taxes), and you work two nights a week at a restaurant for $100 per night plus tips ($800 per month plus a variable $500 in tips, also before taxes), your gross income would equal $4,300 for that month.
Gross income vs. net income
Net income is just your gross income minus your total expenses, taxes and deductions. Net income is effectively your take-home pay — the money you actually get in your pocket — which may make it a more helpful number for personal budgeting than gross income.
Gross income vs. adjusted gross income
The main difference between gross income and adjusted gross income is that gross income is essentially all of your income, whereas adjusted gross income is all your income minus particular deductions or “adjustments,” such as contributions to traditional IRAs, student loan interest and educator expenses.
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How to get help
Doing your taxes and sorting through all the terminology can be daunting, but working with tax software or a tax professional can make it much easier.
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