What Is Gross Income in Personal Finance? Definition & Calculation

What Is Gross Income?

Gross income is the amount of money earned by an individual before taxes and other deductions. It’s the top line figure for income earners.

This article focuses on gross income in personal finance. Gross income for companies, also known as gross margin, subtracts the cost of goods sold from revenue, which is the top-line item on the income statement.

How to Calculate Gross Income

An individual who earns regular income solely from their salaried job can simply count the total amount they earned as their gross income. However, if there are additional sources of income, such as wages from a part-time job or income from the profitable sale of goods or services, that would be added to income from one’s salaried job, and the total of all earnings would represent gross income. Other sources of income include interest from savings accounts, stock dividend payouts, rental income, and tips.

Gross Income Formula

Gross Income = Annual Salary or Wages + Any Other Income Received

How Does Gross Income Differ From Adjusted Gross Income?

Adjusted gross income reflects gross income adjusted for expenses incurred over a period, be it a month or a year.

Adjusted gross income can affect annual taxable income, and as such it can be viewed as earnings between gross income and taxable income. Subtracting some expenses and deductions from gross income results in adjusted gross income. Taxable income is what remains after any further deductions are made from an individual’s AGI.

How to Find Gross Income on W-2 Form

The wage statement, known as a W-2 form, lists wages and salaries on Box 1 of the document. Employers may make pretax deductions for things like employer-sponsored retirement accounts and medical premiums before reporting the gross pay.