Gross Income

What is Gross Income?

Gross income for employees, also known as gross pay on a paycheck, is an employee’s total earnings before taxes or other deductions. It is their take-home pay. This includes other sources of income such as pensions, interest, dividends, and rental income. The gross amount is part of the employee’s income tax return, and after certain deductions and exemptions, it becomes the adjusted gross income, then taxable income.

Reporting gross income may be required when trying to secure a loan.

A business' gross income is the total revenue subtracted with the cost of goods or services sold. Gross income is normally used to better gauge product-specific or service-specific income, in place of net income.

How to utilize Gross Income

An employee can determine their gross income by looking at their pay stub or calculating their hours worked, along with their wages. When filing federal or state income taxes, gross income serves as the starting point before deductions are made, to determine the amount of tax owed.

Although calculating gross income for an employee and a business share some similarities, each uses different classifications of income and expenses.

For individuals: Gross income used on income tax returns includes wages, salary, and other forms of income, such as capital gains, rental payments, tips, and dividends. 

For businesses: Gross income is often included in a company’s income statement. If it is not displayed, it is calculated as gross revenue, subtracted with the cost of goods sold. 

Conclusion

Processing an employee’s pay correctly can be challenging without the latest information and the right experts who continue to monitor ever-changing regulations. Therefore, when it comes to employees’ pay, it’s important to be well-versed on all forms of payroll deductions and terms and to explain how they work, while having a full understanding of the rules around the deductions.

For additional information, see terms entitled Gross Wages, Gross vs. Net Income.