What are 'Gross Earnings'

Gross earnings, for individuals, refers to the total income earned prior to the application of any tax deductions or adjustments. For public companies, gross earnings is an accounting convention, referring to the amount left over from total revenues over a specified time period once the cost of goods sold (COGS) has been deducted.

BREAKING DOWN 'Gross Earnings'

To understand individual gross earnings, consider John, who earned a total of $50,000 for the recently completed fiscal year. He also paid $10,000 in income tax, retirement contributions and Social Security payments. In this case, his gross earnings are $50,000, and his net earnings are $40,000.

On a paycheck stub, generally, the first line states the employee's gross earnings. Typically, this is followed by a list of deductions such as income taxes, and the difference between the gross earnings and the deductions is the employee's net income or the amount that appears on his paycheck.

Gross Income vs. Adjusted Gross Income

For tax purposes, the Internal Revenue Service (IRS) draws a distinction between gross earnings, also called gross income, and adjusted gross income (AGI). Gross income includes all of the money you have earned through the year including wages, income from a business, alimony payments from a former spouse, rental income, interest and a few other types of payments.

The IRS allows taxpayers to take a select number of above-the-line deductions from gross income, and these include certain expenses incurred by educators, eligible moving expenses, contributions to IRA accounts as well as a few others. The difference between your gross income and these deductions is your AGI. When completing your income tax return, you subtract a standard deduction or a list of itemized deductions from your AGI, and the difference yields your taxable income, the amount upon which the IRS levies income tax.

Gross Earnings on Business Income Statements

A company's gross earnings are reported periodically on its income statement. The first line of the income statement reports a company's total sales and revenues for a given time period, while the COGS and gross earnings often appear on the second and third lines of many income statements. The difference between revenue and the COGS is a company's gross earnings. The COGS includes costs directly related to the company's product such as materials for manufacturing, inventory for shops and labor costs. Indirect costs are not included in the COGS.

Once a business has calculated its gross earnings, it may then subtract the rest of its business expenses including costs such as utilities, loan repayments, office supplies, contractor fees and many other expenses. The difference between the business's gross earnings and its operating and capital expenses is its profit.

RELATED TERMS
  1. Gross Income

    Gross income is the total income from all sources before deductions ...
  2. Adjusted Gross Income - AGI

    Adjusted gross income (AGI) is a measure of income calculated ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the ...
  4. Gross Margin

    A company's total sales revenue minus its cost of goods sold, ...
  5. Deduction

    A deduction is any item or expenditure subtracted from gross ...
  6. Adjusted Gross Margin

    Adjusted gross margin is a calculation used to determine the ...
Related Articles
  1. Investing

    Understanding the Income Statement

    The best way to analyze a company - and figure out if it's worth investing in - is to know how to dissect its income statement. Here's how to do it.
  2. Taxes

    Increase Your Tax Refund With Above-The-Line Deductions

    Find out about these deductions and how you can use them to lower your tax bill.
  3. Taxes

    Do Your Research Before Claiming These Deductions

    Be sure to read the fine print about any deduction or credit that you’re planning to claim.
  4. Investing

    Gross, Operating and Net Profit Margins

    A company’s income statement includes the company’s gross, operating and net profits.
  5. Taxes

    7 Tax Terms Explained

    As the tax season begins, there are certain words you need to know. Read on to see what they are.
  6. Tech

    Tax Tips for Deducting Investment Management Fees

    Investment expenses can be deducted from your taxes when three main criteria are met. Here's how they work to help you maximize your tax deduction.
  7. Taxes

    Top Tax Deductions For Brokers

    If you are paying out of pocket, you can make your business expenses work for you at tax time.
  8. Taxes

    7 Commonly Overlooked Tax Deductions

    Don't pay more taxes than you have to because you've missed taking legitimate tax deductions. Here are just a few you may have overlooked.
  9. Investing

    Understanding profit metrics: Gross, operating and net profits

    Rather than relying solely on a company's net profit figures, seasoned investors will often look at gross profit and operating profit as well.
  10. Small Business

    Writing Off the Expenses of Starting Your Own Business

    Learn how to navigate the complicated rules for writing off the expenses of starting your own business. It could save you a lot of money.
RELATED FAQS
  1. What is the difference between taxable income and gross income?

    Learn the basic differences between the terms gross income and taxable income, and what is included in the total of each ... Read Answer >>
  2. What is the difference between AGI (adjusted gross income) and net income?

    Learn about the differences between adjusted gross income, or AGI, and net income, two terms that are sometimes synonymous ... Read Answer >>
  3. Gross Profit, Operating Profit and Net Income

    Find out how to calculate gross profit, operating profit, and net income. Learn about the relationships between theses types ... Read Answer >>
  4. What is the difference between MAGI (modified adjusted gross income) and adjusted ...

    Understand the difference between adjusted gross income and modified adjusted gross income and the effect each has on personal ... Read Answer >>
  5. How do operating income and revenue differ?

    Revenue and operating income have different deductions and credits involved in their calculations and both are essential ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center