Gross income

Gross income is the total pre-tax earnings received by an individual or business before deductions, expenses, or taxes are subtracted. It is the starting point for calculating tax obligations, loan eligibility, and take-home pay.

For individuals, gross income includes wages, bonuses, freelance earnings, and investment income. For businesses, gross income (or gross profit) is total revenue minus the cost of goods sold.

What is gross income?

Gross income is the total amount of money an individual or company receives before any taxes, payroll deductions, or operating expenses are removed. For an individual, that includes wages, salaries, bonuses, tips, freelance and contract earnings, rental income, dividends, interest, and other pre-tax receipts. For a business, gross income is the company's total revenue minus the direct cost of goods sold (COGS).

Gross income matters because it is the baseline used by lenders, landlords, and tax authorities to assess affordability, eligibility, and initial tax calculations. It differs from adjusted gross income (AGI) and net income — AGI subtracts allowable adjustments, and net income subtracts taxes and all remaining expenses.

Key facts

• Individual formula: Annual gross income = sum of all pre-tax earnings (wages + bonuses + freelance income + interest + dividends + rental income + pensions).
• Business formula: Gross income (gross profit) = Total revenue − Cost of Goods Sold (COGS).
• Used by lenders and landlords: Gross income is the standard measure for assessing repayment ability and rental affordability.
• Not the same as AGI or net income: Adjusted gross income applies tax-specific adjustments. Net income subtracts all taxes and deductions. Each serves a different purpose.
• Year-end forms: W-2 and 1099 forms report taxable earnings but may reflect pre-tax deductions differently — verify payroll gross pay lines for the true gross amount.

How to calculate gross income

For individuals:

1. Add up all earnings. Include salary, hourly wages, bonuses, tips, commissions, freelance payments, rental income, dividends, interest, and any other pre-tax income received during the year.
2. Do not subtract deductions. Gross income is calculated before taxes, retirement contributions, health premiums, or any other payroll deductions.
3. The total is your annual gross income. To find monthly gross income, divide the annual total by 12.

For businesses:

1. Start with total revenue. Add up all income from sales, services, and other business activities for the period.
2. Subtract cost of goods sold (COGS). Remove direct costs tied to producing or delivering your products or services — materials, labor, and manufacturing expenses.
3. The result is gross income (gross profit). This figure is used to calculate operating income after subtracting overhead, salaries, and other operating expenses.

How to calculate monthly gross income

• From an annual salary: Divide your annual gross income by 12. For example, $60,000 per year ÷ 12 = $5,000 per month.
• From an hourly wage: Multiply your hourly rate by the average number of hours worked per month. For example, $25 per hour × 160 hours = $4,000 per month.
• From irregular income: Add up all gross earnings over 12 months and divide by 12 to find the monthly average.

Gross income vs adjusted gross income vs net income

• Gross income: Total earnings before anything is subtracted. The broadest measure of income.
• Adjusted gross income (AGI): Gross income minus specific IRS-allowed adjustments such as student loan interest, IRA contributions, and self-employment tax deductions. AGI is used to determine tax bracket and eligibility for credits.
• Net income (take-home pay): The amount remaining after all taxes, payroll deductions, and expenses are subtracted. This is what lands in your bank account.

Example

Sofia earns $25 per hour and works 40 hours per week. Her annual gross income is $25 × 40 × 52 = $52,000. Her monthly gross income is $52,000 ÷ 12 = $4,333.

For a small bookstore that sold $300,000 in revenue with $120,000 in COGS, gross income equals $300,000 − $120,000 = $180,000.

Common mistakes when calculating gross income

• Confusing gross with net: Gross income is before deductions. Net income is after. Mixing them up leads to incorrect budgeting and tax estimates.
• Forgetting non-wage income: Freelance payments, rental income, dividends, and interest all count toward gross income even if they are not on your primary paycheck.
• Using W-2 box totals as true gross: W-2 forms may reflect pre-tax deduction adjustments. Check your payroll gross pay line for the full amount before any deductions.
• Ignoring business COGS: For businesses, gross income requires subtracting COGS from revenue — not reporting total revenue as gross income.

Using Deel to calculate gross-to-net and run payroll

Deel's payroll and calculator tools help employers and employees convert gross to net reliably across jurisdictions:

• Take-home pay calculator — Estimate net pay from gross income based on location, filing status, and deductions.
• Deel Payroll — Run compliant payroll calculations at scale for employees across multiple countries and U.S. states.
• Global payroll — Learn how gross-to-net calculations work for international teams with varying tax rules and currencies.

FAQ

What is gross income? Gross income is your total pre-tax earnings from all sources before deductions and taxes are subtracted.

Is gross income before tax? Yes. Gross income is calculated before taxes, payroll deductions, and most benefits are subtracted.

How do I calculate gross income? For individuals, add all pre-tax earnings for the year including salary, bonuses, freelance income, and investment income. For businesses, subtract COGS from total revenue.

What is annual gross income? Annual gross income is the total gross income earned over a 12-month period. It is used for loan applications, rental assessments, and tax calculations.

How do I calculate monthly gross income? Divide your annual gross income by 12, or multiply your hourly rate by the average number of hours you work per month.