Loading the player...

What is 'Net Income - NI'

Net income - NI is equal to net earnings (profit) calculated as sales less COGS, SG&A, operating expenses, depreciation, interest, taxes and other expenses. This number appears on a company's income statement and is an important measure of how profitable the company is over a period of time.

Net income also refers to an individual's income after taking taxes and deductions into account.

BREAKING DOWN 'Net Income - NI'

Businesses use net income (NI) to calculate their earnings per share (EPS). Business analysts often refer to net income to as the bottom line, since it is listed at the bottom of the income statement. In the United Kingdom, NI is known as profit attributable to shareholders.

Calculating Net Income for Businesses

To calculate net income for a business, start with a company's total revenue. From this figure, subtract the businesses expenses and operating costs to calculate the business's earnings before tax. Deduct tax from this amount to find the business's net income.

Net income, like other accounting measures, is susceptible to manipulation through such things as aggressive revenue recognition or by hiding expenses. When basing an investment decision on net income numbers, review the quality of the numbers that were used to arrive at the business's taxable income as well as its net income.

Personal Gross Income Versus Net Income

Gross income refers to an individual's total earnings or pre-tax earnings, and net income refers to the difference after deductions and taxes are factored into gross income. To calculate taxable income, taxpayers subtract deductions from gross income, and the Internal Revenue Service (IRS) bases income tax on this figure. The difference between taxable income and income tax is an individual's net income.

For example, imagine someone has $60,000 in gross income, and he qualifies for $10,000 in deductions. His taxable income is $50,000, and he has an effective tax rate of 15%, making his income tax payment $7,500 and his net income $42,500.

Net Income on Tax Returns

In the United States, individual taxpayers submit some version of Form 1040 to the IRS to report their annual earnings. This form does not have a line for net income. Instead, it has lines to record gross income, adjusted gross income (AGI) and taxable income.

After noting their gross income, taxpayers subtract certain income sources such as Social Security benefits and qualifying deductions such as student loan interest. The difference is their AGI. Taxpayers then subtract standard or itemized deductions from their AGI to determine their taxable income. As indicated above, the difference between taxable income and income tax is the individual's net income, but this number is not noted on individual tax forms.

Net Income on Paycheck Stubs

Most paycheck stubs have a line devoted to net income. This is the amount that appears on an employee's check. It consists of his gross income, minus taxes and retirement account contributions.

RELATED TERMS
  1. Gross Income

    Gross income is the total income from all sources before deductions ...
  2. Above The Line Deduction

    An above the line deduction is an item that is subtracted from ...
  3. Taxable Income

    Taxable income is the amount on which the tax an individual or ...
  4. Income Basket

    An income basket is a category of income or loss according to ...
  5. Income Tax

    A tax that governments impose on financial income generated by ...
  6. Business Income

    Business income is a type of earned income, and is classified ...
Related Articles
  1. Taxes

    Which Countries Have the Highest Taxes on High Incomes?

    These countries charge the highest taxes on high incomes.
  2. Investing

    Gross, Operating and Net Profit Margins

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

    How to Reduce Risk With Tax Diversification

    Is your retirement income adequately diversified from a tax standpoint?
  4. Taxes

    5 Tax-Efficient Portfolio Tips for High Income Earners

    High income earners can use these tips to make their portfolio more tax-efficient.
  5. Investing

    Calculating Net Income

    Otherwise known as the "bottom line", net income is the most commonly used indicator of a company's profitability. Learn more about how it an investor's decision to own or sell a stock.
  6. Managing Wealth

    It's Not Just Trump: Meet the HINTs (High Income, No Taxes)

    Donald Trump may be the most flamboyant example, but so many affluent Americans don't pay taxes that the IRS even has a nickname for them.
  7. Taxes

    How Getting A Raise Affects Your Taxes

    Many people think they may actually make less overall because they are paying more taxes.
  8. Investing

    How To Analyze Netflix's Income Statements

    Learn how to read Netflix's income statement, calculate net income and interpret EPS to evaluate the company's current financial condition.
  9. 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.
RELATED FAQS
  1. How do operating income and net income differ?

    Operating income and net income both show the income earned by a company, but they are distinctly different ways of expressing ... Read Answer >>
  2. What is the difference between revenue and income?

    Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.  ... Read Answer >>
  3. How do earnings and revenue differ?

    Revenue is the total income earned by a company for selling its goods and services. Earnings are the bottom line on a company's ... Read Answer >>
  4. Is operating profit the same as net income?

    Understand the difference between operating profit and net income, including how each type relates to the other and how both ... Read Answer >>
Hot Definitions
  1. Intrinsic Value

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

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

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

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

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center