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What Is Gross Monthly Income? (+5 FAQs Answered)

by Milos Djordjevic

What is gross monthly income, and is it any different from net monthly earnings? When employers offer you a compensation package, which one of the two are they referring to? Which number should you provide if you’re applying for a loan? You’ll find the answers to all these questions in this article! In addition, we’ll help you learn how to calculate both your net and gross monthly and annual salaries.

What Does Gross Monthly Income Mean?

The gross monthly income is your salary before taxes and any other deductions. If you’re an employee, the monthly salary will usually be the sum in your contract divided by 12. It is the amount of money your employer likely refers to when they offer you the compensation package. This number includes wages, overtime, tips, commissions, and bonuses. 

In case you’re self-employed, your gross monthly income will consist of the average monthly profits from the business you own. Just like in the employee situation, this number shows the earnings before income tax and any other deductions that you might have.

1. How to Calculate Monthly Income?

Since you won’t have to deduct anything from your monthly earnings, it will be pretty easy to calculate your gross monthly income. If your salary is not in the form of an annual sum but by the hour, you should multiply your hourly rate by the hours of work you put in per week. Then, you’ll need to multiply it by 52 to get your annual earnings. After that, you’ll have to divide the number you get by 12 to get your monthly gross income. 

On the other hand, business owners calculate their average gross monthly income differently. In this case, the gross monthly payment includes all of the business-related profits you receive before tax deductions.

Depending on your job and other side hustles or freelance jobs you might have, this calculation can be modified. For instance, you can include your bonuses, freelance and side earnings, commissions, and similar income. What’s more, capital gains, interest, and dividend payments can also be part of your gross monthly income.

Learn more: How much does the average American make?

What is Gross Monthly Income - How to calculate it

2. Is Gross Before or After Taxes?

As we mentioned, your gross monthly income is the sum you earn before any deductions. Therefore, it’s your salary before taxes. Even though it might not sound as relevant to the actual amount of money you’ll be receiving, the gross monthly income matters. For instance, you wouldn’t be able to take out a loan from most institutions unless this number exceeds a certain amount.

3. What Is Total Annual Income?

Annual income can be expressed in two ways: gross yearly income and net annual income. Hence, most of the forms you’ll be filling out and institutions requiring proof of your earnings will specify which type of yearly salary they need from you. 

In case you can’t find any information on the type of income a question refers to, the total annual income is usually the same as your gross income for the year. Therefore, you should indicate the amount of money your employer is paying you during the year before any tax deductions.

In most cases, you should calculate your salary from January to December to get the annual income sum. It’s wise to keep in mind that some institutions and organizations base incomes on a fiscal year. That means the yearly income they’re referring to is the amount of money you make from the first day of October until the last day of September the following year.

4. How to Calculate Gross Annual Income?

The majority of employers will give you your salary information in the form of gross annual income. Therefore, you won’t have to calculate anything if you need the gross sum that you’ll be earning.

On the other hand, your net income will require further calculations as you’ll have to subtract taxes and other deductibles to determine how much money you’ll be taking home. In case you receive a salary based on an hourly rate, you should simply calculate the number of hours you work per week. Then, you’ll have to multiply that number by 52 to get your gross income for the year.

5. What Is the Difference Between Gross Income and Net Income?

Gross and net earnings are two completely different numbers and refer to different kinds of income. As we mentioned, the gross salary shows your income before any deductions. This number is usually the one in your contracts and most employers refer to it in their compensation packages.

On the other hand, net income is the actual amount of money you’ll be left with after taxes and other deductibles. Unlike the monthly gross salary, this number takes a lot of calculations, and the final amount depends on each person’s deductions. In most cases, aside from taxes, you’ll have to deduct your retirement and flexible spending account contributions, health insurance premiums, commuter benefits, and other types of insurance such as supplemental or life and disability insurance.

Final Thoughts

We can’t stress enough how essential it is to know the difference between gross and net income. Many people end up disappointed when their salary arrives, and they expect their gross earnings to be the actual amount they’re receiving. Not knowing the difference will also make planning your expenses and paying your loans much more difficult.

We don’t want you to have this kind of a problem! That’s why we explained everything you need to know about gross vs. net salary and how to calculate them. Hopefully, you now have a better understanding of your income, and you can figure out how much money you’ll be receiving each month. Now you can start saving up or planning your monthly expenses!