Gross Income

What Is Gross Income?

Gross income for an individual—also known as gross pay when it’s on a paycheck—is an individual’s total earnings before taxes or other deductions. This includes income from all sources, not just employment, and is not limited to income received in cash; it also includes property or services received. 

For companies, gross income is interchangeable with gross margin or gross profit. A company’s gross income, found on the income statement, is the revenue from all sources minus the firm’s cost of goods sold (COGS).

Understanding Gross Income

Individual gross income

An individual’s gross income is used by lenders or landlords to determine whether that person is a worthy borrower or renter. When filing federal and state income taxes, gross income is the starting point before subtracting deductions to determine the amount of tax owed.

For individuals, the gross income metric used on the income tax return includes not just wages or salary but also other forms of income, such as tips, capital gains, rental payments, dividends, alimony, pension, and interest. After subtracting above-the-line tax deductions, the result is adjusted gross income (AGI).

Continuing down the tax form, below-the-line deductions are taken from AGI and result in a taxable income figure. After applying any allowed deductions or exemptions, the resulting taxable income can be significantly less than an individual’s gross income.

There are income sources that are not included in gross income for tax purposes but still may be included when calculating gross income for a lender or creditor. Common nontaxable income sources are certain Social Security benefits, life insurance payouts, some inheritances or gifts, and state or municipal bond interest. 

Business gross income

Gross income is a line item that is sometimes included in a company’s income statement. If not displayed, it’s calculated as gross revenue minus COGS.

$\begin{aligned} &\text{Gross Income} = \text{Gross Revenue} - \text{COGS} \\ &\textbf{where:}\\ &\text{COGS} = \text{Cost of Goods Sold} \\ \end{aligned}$​Gross Income=Gross Revenue−COGSwhere:COGS=Cost of Goods Sold​

Gross income is sometimes referred to as gross margin. There’s also gross profit margin, which is more correctly defined as a percentage and is used as a profitability metric. The gross income for a company reveals how much money it has made on its products or services after subtracting the direct costs to make the product or provide the service.

Example of Individual Gross Income

Assume that an individual has a $75,000 annual salary, generates $1,000 a year in interest from a savings account, collects $500 per year in stock dividends, and receives $10,000 a year from rental property income. Their gross annual income is $86,500.