What is gross income

Gross income is the total amount of money earned by an individual or business before taxes, deductions, or expenses are subtracted.

For an individual, gross pay indicates total earnings before tax or deductions. Net pay refers to the total earnings after those deductions have been applied.

Companies also measure gross income, which can be described as gross margin or gross profit. It refers to their revenue from all sources minus the cost of goods sold (COGS).

How to calculate gross pay

Certain instances, such as approaching lenders or securing a rental agreement, require applicants to specify their gross income. Gross income is also the first step in calculating federal income tax.

We’ve outlined guidance and simple formulas for calculating gross income on an individual and business level.

Calculating gross pay for an individual

An individual’s gross income is the sum of all sources of income, such as:

• Employment annual income (before tax deductions)

• Dividends on stock

• Capital gains

• Alimony

• Pension

• Income from rental property

• Interest from investments and a savings bank account

Follow this formula to calculate your individual annual gross pay: 

• Total annual gross income = sum of all pre‑tax earnings (wages + bonuses + freelance income + interest + dividends + rental income + pensions)

If you’re earning income in the US, you can also refer to your total gross income as reflected on the year-end W-2 or 1099 form submitted to the IRS.

*Note: Inheritance, municipal or state bonds, social security benefits, and life insurance proceeds are examples of non-taxable income.*

Calculating gross income for a business

Gross income is usually measured over a year, but businesses may report their gross income quarterly.

The formula for calculating the gross income for a business is fairly straightforward:

Gross income = Total revenue - COGS

The cost of goods sold is calculated by adding all direct costs in producing or providing goods and services. COGS does not include other business costs related to running the business, such as payroll taxes, equipment, and marketing.

Gross income vs. net income

Gross income and net income are two different figures determined by significant factors.

Individual net income

An individual’s gross income includes their salary or hourly wages before deductions or withholdings.

Net income describes the take-home pay, calculated by subtracting all deductions and personal expenses from gross income. These expenses include health insurance, such as Medicare, and retirement plans, such as IRA. Usually, an individual’s net income resembles the figure on their pay stub.

Business net income

Business net income is the total amount of revenue minus the total amount of expenses beyond COGS. While gross income offers a higher view of the company, net income considers all costs involved in the business.

If the books reflect a positive net income, then the business is making a profit. A negative net income reveals that the business has incurred a loss. A significant difference between gross income and net income suggests that the business has a lot of expenses (some of which may be unnecessary).

How to calculate your monthly gross income

Gross monthly income refers to an individual’s earned income or business income within a single month before considering taxes or deductions.

Three easy methods to calculate an individual’s monthly gross income include:

1. Review the pay stub and determine the monthly salary before taxes

2. Calculate the number of hours you work in a month and multiply the figure by your hourly rate

3. Divide your annual salary by 12 (months)

The above methods can be applied to a full-time employee, self-employed contractor, or freelancer. Take note that all other forms of income should be considered, such as investments, side hustles, and child support payments.

When calculating a business’s gross income on a monthly basis, apply the same general formula for gross income: Gross income = Gross revenue - COGS

How to reconcile gross income on pay stubs

If you notice inconsistencies in your pay stubs, you can follow these steps to reconcile your gross income and identify any errors.

1. Find the "Gross Pay" line on your pay stub for the pay period

2. Confirm hours × rate match the period totals (include overtime, commissions, bonuses)

3. Check year‑to‑date (YTD) gross pay against your W‑2 or 1099 totals at year‑end

4. If numbers differ, check for retroactive pay, corrections, or pre‑tax benefit deductions affecting net pay but not gross pay. Contact HR/payroll for unresolved discrepancies

Ensure accurate payroll calculations and maintain compliance with Deel

Relying on manual processes to calculate gross-to-net pay can lead to errors and non-compliance penalties.

Deel Payroll delivers compliant, accurate payroll in 130+ countries, supported by Deel’s own payroll infrastructure and trusted in-country expertise—never outsourced.

In 50+ of those countries, payroll is powered by Deel’s native, real-time calculation engine, enabling instant results, faster processing, and seamless integrations.

Frequently asked questions about gross income

How do I calculate gross income with hourly wages?

Multiply your hourly rate × hours worked per week × number of weeks worked per year (usually 52), then divide by 12 for the monthly gross amount. For variable hours, use an average of past 3 months.

What income do freelancers include when calculating gross income?

For freelancers, include all earnings (invoices, 1099‑income, rental, dividends) before deductions. For those who are self-employed, subtract business COGS to calculate gross profit for the business side, and keep personal and business totals separate.

How is gross income different from adjusted gross income (AGI)?

Gross income is the total before adjustments. Adjusted gross income (AGI) = gross income − allowable “above‑the‑line” adjustments (see IRS Schedule 1). AGI is used to determine taxable income.

Why is gross income important for rental or loan applications?

Lenders and landlords use gross income to assess repayment/affordability before deductions. They need a consistent pre‑tax number to compare applicants.