What is gross income?

Gross income is all the income you earn in a tax year from any source before any taxes or deductions. It includes income from various sources, like cash, property, and services. Typically, it’s referred to as gross income on a paycheck.

On your paycheck, you’ll also see how much net income you get. That’s the amount of money left after deductions like taxes, employee benefits, or retirement plan contributions — essentially your take-home pay. Generally, a pay stub includes a breakdown of what deductions and what amount of each deduction have been taken out of your paycheck.

It’s important to know what gross income includes and what deductions are taken out to be able to plan for the cost of living expenses like food, housing, bills, and transportation. Your net income is not only crucial for living expenses, but also for how much money you have available to spend, pay back debt, or save.

Gross income is your total income before taxes or other deductions. Income sources may include:

• Wages and salaries

• Side-gigs or self-employment revenue

• Investment income including interest, dividends, and capital gains

• Rental income, alimony, pensions, unemployment, Social Security benefits

As there is a very broad meaning to “all income,” it might be helpful to know what kinds of income are excluded from taxation. Those include gifts and inheritances, most municipal bonds, life insurance death benefits, and non-taxable portions of Social Security.

Adjusted gross income (AGI) is your total income minus certain above-the-line deductions, such as retirement contributions or student loan interest, before itemized or standardized deductions. The AGI is tallied by the IRS before any taxes are calculated and paid.

Net income is your gross income reduced by taxes and other deductions. It’s also known as your take-home pay. It is the amount that ends up in your bank account or paycheck. Those taxes and deductions that affect your net income are state, local, Social Security, Medicare, and federal taxes. Other deductions might be health and dental insurance premiums, retirement contributions such as Roth IRAs, and flexible spending accounts (FSAs).

By reducing your gross income, these deductions also lower the taxes withheld from your paycheck, resulting in your net income, or take-home pay.

Here’s a comparison of gross income vs. AGI vs. net income:

Gross income is before any taxes or other deductions. After filing a tax return and federal or state withholdings, your taxable income becomes net income. Deductions include retirement contributions or student loan interest. After those deductions and before taxation, your gross income is referred to as adjusted gross income (AGI).

For calculating your gross income, you need your pay stubs and tax forms (W-2 box 1, 1099s). By adding up all income sources manually or via tax software, you will get your gross income.

For example, if you have income through a job, a side gig, and interest payments, your total earnings have to be added up, resulting in your gross income:

• Annual salary from primary job: $46,000

•  Income from side gig: $15,000

• Interest earnings from a savings account: $400

To calculate the gross income:

• Salary + Side Gig Income + Interest = Gross Income 

• $46,000 + $15,000 + $400 = $61,400

If you’re a saver, it might be helpful to review forms from the past year and sum up monthly projections so that you know how you can better use and save your money.

There are a few tips with which you can choose a savings account based on your gross income:

• What is your gross income: Estimate your annual gross income to gauge how much you can save monthly.

• Compare annual percentage yields (APY) tiers or levels: APY can sometimes depend on your gross income. Raisin does not use your income to determine your APY.

• Consider liquidity: You might want to ensure liquidity options, or consider how often you will need to access your funds.

• Plan your saving strategy: With a money savings plan and gross income forecasts (e.g., from bonuses), you can plan laddered savings.

Raisin offers access to a variety of high-yield savings products to cater to different savers. Comparing account types and interest rates can help you find the best account that suits your needs.

No, gross income and taxable income are not the same. While gross income represents the total amount of your earnings before taxes and other deductions, taxable income is the portion that’s subject to taxation.

You find your annual gross income in the W-2 form under Check Box 1 for wages, tips, or other compensations. If you’re an independent contractor, you’ll receive 1099 forms from your clients, where you can find your gross income.

Yes, gross income includes retirement income and a portion of Social Security benefits. If your gross income exceeds a certain threshold, it might affect the taxation of those benefits and your eligibility for various tax credits and deductions. In turn, this can have an impact on your overall tax liability and financial situation.

Your gross income is the basis for all your financial decisions. Also, your net income depends on the amount of your gross income. Some savings accounts might have certain requirements for minimum deposits. Raisin only requires a $1 minimum deposit for all account types.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.