An HR Glossary for HR Terms
Glossary of Human Resources Management and Employee Benefit Terms
What is Gross Income?
Gross income is the amount of money a business, employee, or contractor earns over a certain period of time. It is typically measured over a year, but businesses often report their gross income quarterly.
For a company, gross income is the revenue from all sources minus the cost of goods sold (COGS). It does not include the other costs involved in running the business, like payroll, office space, equipment, marketing, and advertising, etc. Gross income reveals how much money a business has made on products/services after subtracting the direct costs in manufacturing the product or providing the service.
Gross income is a helpful tool to gauge a company’s profitability, and can give a more complete picture of its basic financial performance. It is sometimes included in a company’s income statement, but isn’t required. Gross income is sometimes referred to as gross margin.
Gross income for an individual, also called gross pay, consists of wages, salary, and other forms of income like tips, rental income, capital gains, pension, and interest income. It is the money the individual earns before deductions and withholding, and is also typically calculated on a yearly basis. Gross income is the starting amount used for income taxes, before adjusting for deductions, tax credits, etc.
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What is the difference between gross income and net income?
For a business, gross income (also referred to as gross profit) is the company’s revenue minus the cost of goods for the product/service it sells. An organization’s net income, also called net profit, is typically the amount of money the business has after accounting for operating expenses.
For example, if a business has sales of $1,000,000, the cost of goods sold is $600,000, and selling expenses of $100,000, its gross income would be $400,000. The net income would be $300,000.
Gross income for individuals is the money paid for salary or hourly wages before any deductions or withholdings are taken out. Net income, sometimes called net pay or take-home pay, is the amount of money the individual gets in their pocket after subtracting deductions or withholdings.
A good rule of thumb to keep the terms straight is that gross income is typically more than net income.
What is the difference between revenue and gross income?
Revenue (sometimes called sales) is the total amount of money a company receives from selling its goods or services. No other factors or deductions are taken into account. To determine gross income, subtract the cost of goods sold from sales revenue.
What is your monthly gross income?
Monthly gross income is the amount of money a business receives in a month from sales of a product or service, minus the cost of goods required to produce the product or service that was sold.
For employees/contractors, monthly gross income (or monthly gross pay) is the total money they receive in a month, before any taxes or deductions are taken out. It can usually be found listed on your paycheck. Monthly gross income also includes other sources of income for the month beyond wages or salary, like interests in a business, investment income, or pension and retirement income.
Multiply your monthly gross income by 12 in order to get your yearly gross income. In reverse, if you earn an annual salary, simply take the amount you earn each year, plus any additional sources of income, and divide by 12 to get your gross monthly income.
What is federal gross income?
Employees may look at their paychecks and see two numbers for gross income: gross income and federal taxable gross income. The federal taxable gross income is usually the lower amount. This is because some of the money withheld from a paycheck isn't subject to tax. Some examples include 401(k) contributions, which use pre-tax dollars, health insurance premiums, health savings accounts, or flexible spending accounts.
See also our term entitled "Gross vs. Net Income."
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