Gross income

What It Means

Gross income is the full amount you earn before anything is taken out. It has two meanings that overlap. (1) On a paycheck and in a budgetBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more, it's your wages or salary before taxes and other deductions; the Consumer Financial Protection Bureau (CFPB) calls this gross income and calls what reaches you afterward net incomeNet incomeWhat's left after everything is taken out: on a paycheck, pay after taxes and deductions; for a business, profit after all expenses and taxes. See more, or take-home payTake-home payThe money that actually reaches you from a paycheck after taxes and other deductions are taken out, also called net pay or net income. See more. (2) For federal taxes, the IRS counts as gross income everything you receive as money, goods, property or services unless the law exempts it, so interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more, dividends and rent count alongside pay.

How It Sounds at Home

• "It's $60,000 a year before taxes."
• "Is that your gross or your take-home?"
• "At $22 an hour, that's about $45,000 gross."

The Breakdown

Worked example. Dana earns $22 an hour for 40 hours a week and is paid every two weeks. She also makes about $1,200 a year tutoringTutoringExtra one-on-one or small-group teaching outside regular class time, to help a student catch up, keep up or get ahead in a subject. See more on weekends (made-up numbers).

What the result means. Gross income is the starting line. Federal and state income tax, Social Security and Medicare, and any retirement or health insuranceHealth insuranceA plan you pay a premium for that covers part of your medical costs, while you pay your own share through a deductible, copays and coinsurance. See more deductions come out before pay reaches Dana's account, so her take-home pay is smaller than $1,760 a paycheck. In her budget she'll use the take-home figure. For taxes, the tutoring money counts as gross income too, because the IRS treats pay for work you perform as earned income whether it arrives as wages, tips or fees.

Good to Know

The IRS explains what counts in Publication 525, Taxable and Nontaxable Income, and says that in most cases an amount you receive is taxable unless a law specifically exempts it. Earned income covers wages, salaries, tips and fees for work, and unearned income covers interest, dividends, capital gainsCapital gainsThe profit when you sell an investment or other capital asset for more than you paid; the tax depends on whether you held it more than one year. See more, rents and royalties. Income from outside the United States, or from selling your main home, still counts as gross income even when you can exclude part or all of it. Whether you have to file a federal return depends partly on your gross income, and the thresholds change each year, so check the IRS page "Who needs to file a tax return" for the current figures. Adjusted gross income (AGI) starts from gross income and subtracts certain adjustments the IRS allows. For anything beyond the basics, ask a tax professional.

Related Terms and Categories

• Net income

  What's left after everything is taken out: on a paycheck, pay after taxes and deductions; for a business, profit after all expenses and taxes.

• Take-home pay

  The money that actually reaches you from a paycheck after taxes and other deductions are taken out, also called net pay or net income.

• Household income

  The combined income of everyone in a household over a year; the Census Bureau counts every member age 15 and older, before taxes.

• Pay frequency

  How often an employer pays you, usually weekly, every two weeks, twice a month or monthly, which sets how many paychecks you get in a year.

• Side hustle

  Paid work done alongside a main job or other commitments, such as freelancing, delivery driving or selling goods; the IRS treats the income as taxable.

• Passive income

  Income that keeps coming in without much ongoing work, like rent; for taxes, the IRS limits it to rentals and businesses you don't materially take part in.

Household money and budgeting