Gross Income
Gross income summary:
Gross income is how much you earn before deductions are taken out of your pay.
Gross income includes all sources of income, including self-employment and rental income.
Gross income is the starting point for determining whether you qualify for Chapter 7 bankruptcy.
Gross income definition and meaning
Gross income is how much you earn from all income sources before deductions are made. Gross income is the starting point in determining your tax bill and may be used to calculate loan eligibility.
Key concept: Gross income includes all your income sources for the year before deductions are taken out (both pre-tax deductions and above-the-line tax deductions, such as student loan interest, healthcare expenses, and business expenses).
More about gross income
When someone refers to your gross income, they're talking about how much money you bring in a year, including all sources of income. This includes:
Wages
Bonuses
Commissions
Rental income
Self-employment income
Interest and dividends
Alimony
Royalties
Lottery winnings
Any other source of income
Once deductions have been made to your paychecks, the amount you receive is called your net income.
Lenders and landlords often use gross income to determine if you can afford to make regular monthly payments.
How gross income relates to bankruptcy
Gross income is an important figure if you ever file for bankruptcy. The bankruptcy means test considers your gross income to determine whether you qualify for Chapter 7 bankruptcy protection. Chapter 7 bankruptcy allows you to walk away from certain debts.
You won’t qualify for Chapter 7 if the court decides that your income is high enough to afford a payment. If your gross income is too high to qualify for Chapter 7, you might qualify for Chapter 13 instead. Chapter 13 is a structured payment plan that lasts for three or five years.
Gross Income FAQs
Why does gross income matter when I'm negotiating my salary?
When an employer offers you a job, the pay they refer to is your gross income—the amount you'll earn before deductions are taken. If it's a full-time position, you can figure out how much you're being offered per hour by dividing the gross income by 2,080, the average full-time employee's hours worked per year. For example, if you're offered a gross income of $75,000, the hourly pay is $36.06.
Why does my adjusted gross income matter?
It matters because it can help determine whether you qualify for a loan or to rent a new home. It also comes into play if you ever file for Chapter 7 bankruptcy protection.
What are some less common sources of income included in my gross income?
Alimony, money earned working a side hustle, and royalties are income sources that are part of your gross income.
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