Takeaways
- Gross income is your total earnings from all sources before taxes.
- Gross income is reported on your tax return and becomes adjusted gross income.
- Gross income influences what credit products, like credit cards, you qualify for.
- Gross income can affect borrowing limits for mortgages and personal loans.
- Gross income is your total income from salary, wages, interest, rental income, dividends, and freelancing income.
What Is Gross Income?
Gross income is the total amount of pre-tax income you earn. It comes from all sources of earnings, including your salary, bonus, freelance income, rents, wages, tips, capital gains, and any other consideration considered income by the Internal Revenue Service.[1]
High earners tend to get access to the best personal loans and products at lower costs. Your total gross income dictates the size of your mortgage, the cars you can afford, the apartment you can rent, and the credit cards you qualify for. High earners tend to get access to the best loans and lower-cost products.
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How Gross Income Works
The total amount of your gross income is calculated by adding up all your sources of income. If you work a 9 to 5, you can refer to your Form W-2 to see what you earned all year. But if you are like most people, you have a side hustle or freelance job that helps you earn more income to pay for extra expenses or save more.
Remember to include income from selling investments, too. These capital gains are included in gross income. Income from investments can consist of rental income from rental properties, dividend payments from stocks, or interest payments from high-yield savings accounts or certificates of deposit.
When you are filing your taxes, ensuring you have included all your income can feel overwhelming. Most filers get anxious that they have left something out of their total earnings. That's where using one of the best online tax software programs comes into play. They automatically link to your payroll system, bank accounts, and brokerage accounts to ensure you fully report your gross income.
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Example of Gross Income
Let's assume you are a hard-working young marketing professional with a couple of years of experience. You work for a savvy technology startup that pays you $120,000 annually. In addition to your full-time job, you also moonlight as a freelance consultant, earning an extra $2,000 per month. Your gross monthly income is $12,000, and your annual gross income is $144,000.
Now it’s your turn. Plug and play with our “real world” gross income calculator below to see where you stand.
Read More: 10 Steps to Get the Raise You Deserve
Gross Income Calculator
You can use the Gross Income Calculator below to estimate your gross income. Include all sources of income to reflect your total gross income accurately.
Calculator
Gross Income Calculator
Annual Income Sources
Total Annual Gross Income
What Gross Income Affects
Banks, credit unions, and other lenders like applicants with high incomes and low debt-to-income levels. Here’s how your gross income influences the products you qualify for:
- Credit Cards: Higher gross income allows credit card companies to extend higher credit limits to credit card users. Increased earnings will enable you to pay credit card debt faster and reflect an ability to repay borrowed money.
- Personal Loans: The great part about personal loans is that you can use the capital for almost anything – taking a vacation, renovating your home, or buying new furniture. By earning more money, lenders will lend you more capital at lower APRs.
- Rent Applications: Landlords hate stressing over whether you can pay your rent on time. High-income earners can pay more for rent and are considered more reliable tenants. By increasing your gross income, you can afford nicer apartments or decide to save for a down payment.
- Mortgages: Mortgage lenders analyze your ability to finance a loan over a 15-to-30-year time horizon. They evaluate how much income you make and look at the quality of your earnings (e.g., have you sustained this income for several years). Quality of earnings is especially meaningful if you are applying for a jumbo loan.
- Graduate Loans: Paying off your undergraduate student loans is one thing, but graduate schools can be costly. High-paying professions can pay off higher loan amounts faster. Lenders assess what your debt-to-income will be post-graduation.
- Income Taxes: A higher gross income usually means a higher adjusted gross income. Your income and how much you have paid in taxes throughout the year will dictate whether you have a tax liability or tax refund.
Smart Tip:
High-income earners can get caught in too much debt. Learn more about the 30% rule, which applies to everyone regardless of income level.
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Net Income
Net income is often called disposable income or take-home pay. It is the amount of money that hits your checking account after each paycheck. Net income is essential for budgeting because it accurately reflects how much money you can spend on rent, minimum credit card payments, groceries, and other monthly expenses.
Related: What Is Discretionary Income?
Adjusted Gross Income
Adjusted gross income (AGI) is a tax term used by the IRS, which takes your gross income and subtracts qualifying deductions and adjustments. Your adjusted gross income is what you use when you are filing your annual tax return.
You can calculate your AGI by taking your cross income and subtracting expenses like deductible IRA contributions, HSA contributions, student loan interest, and other allowable expenses. You can find your adjusted gross income on Form 1040.
Read Also: What Is Tax Loss-Harvesting?
Smart Summary
Gross income is the total amount of your pre-tax earnings. You can use gross income as a barometer for how well you produce income. A high gross income allows you to qualify for the best credit cards and credit products. When filing your taxes, you must know your gross income to calculate your adjusted gross income.
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(1) Internal Revenue Services. Adjusted Gross Income. Last Accessed March 30, 2025.
