What is Gross Monthly Income? (and 4 Ways to Calculate It)

Article Summary:

What is gross monthly income? Gross income is the total amount of money an individual or a business makes before accounting for taxes or other expenses. Calculating gross income is relatively straightforward, and it is a useful measure for determining loan eligibility, budgeting, filing taxes, and evaluating the health of your business.

Why does your gross income matter?

If you apply for a loan or try to file your taxes, you will need to provide different pieces of financial information. These include gross income, adjusted gross income, and net income. All of these terms are related but have different meanings and relevance. Gross income is also known as gross pay, gross margin, or gross profit. This is one value that you may be asked for as you apply for a loan, start to budget, evaluate your business profitability, or file your taxes.

Understanding your gross income is important for both individuals and businesses. However, depending on whether you are an individual or a business, the calculation, application, and relevance of gross income will differ.

Despite the differences, gross income for businesses and individuals can be thought of as simply the total amount of compensation received for commercial activity. It is a simple figure to calculate, and you should be aware of both your annual gross income and monthly gross income. For individuals, knowing your monthly gross income is especially important for budgeting and financing a big purchase like a car or a home.

What is gross income?

Gross income is an individual or business’ total earnings before taxes and other deductions. This includes income beyond that from employment, meaning it also includes income from rental properties, bonuses, commissions, freelance work and side hustles, tips, dividends, a pension, and interest. In other words, it is the sum of all your earnings, excluding gifts and inheritance. Gross income is simple in that it does not factor in taxes or deductions. However, there are some important nuances to gross income, especially when it comes to individuals versus businesses.

How to calculate gross income for an individual

Gross income for an individual includes all forms of income from employment and other commercial activity. On your paycheck, your gross income shows as gross pay. When calculating your gross income, you should include your salary, bonuses, commissions, side earnings, interest, dividends, and capital gains. However, you do not need to account for your taxes or deductions when calculating your gross income.

Example calculation of annual gross income for an individual

Let’s assume that an individual has an annual salary of $60,000. This individual generates $750 in interest per year from a savings account and has a rental property that generates $12,000 per year in income. This person’s gross annual income is the sum of all these income streams, or $72,750.

Example calculation of monthly gross income for an individual

Sometimes, such as when you budget for monthly rent and loan payments, knowing your monthly gross income is more useful than knowing your annual gross income.

Receive an annual salary

If you are on an annual salary, calculating your monthly gross income is simple. First, sum up all your income to calculate your annual gross income, then divide by 12. Using the above example, this individual’s monthly gross income would be $72,750 divided by 12, or $6,062.50. In terms of a general formula, this means:


Monthly gross income = (Annual gross income) / 12


Paid hourly

If you are paid hourly, calculating your monthly gross income can be complicated. First, convert your hourly wage into an annual salary. To do this, multiply your hourly salary by the number of hours you work per week and then multiply by the number of weeks in a year, or 52. Turn this annual gross income into monthly gross income by dividing by 12. The formula is as follows:


Monthly gross income = ((Hourly pay) x (# hours per week) x 52) / 12

Let’s walk through an example together. We will say that this individual makes $12 per hour and works approximately 30 hours per week. This yields a weekly gross pay of $360 and an annual gross pay of $18,720 ($360 multiplied by 52).


Monthly gross income = (12 x (30 hours per week) x 52) / 12 = $18,720 / 12 = $1,560.

So, assuming no other source of compensation, this person’s monthly gross income would be $1,560.

Paid hourly with a second source of income

In the real world, though, things are rarely so simple.

To illustrate, let’s also assume that this individual has $6,000 of additional income from freelance work. That would make the annual gross pay $24,720 ($18,720 + $6,000). Using that new annual figure, we revert back to the more general formula and repeat the final step, dividing by 12, and find that this individual’s monthly gross income is $2,060.


Monthly gross income = (Annual gross income from all sources) / 12 = ($18,720 + $6,000) / 12 = $2,060.


Paid hourly with multiple additional sources of income

For third and fourth sources of income, just add the gross figures for all those income streams to find your “Annual gross income from all sources,” then divide by 12 for your monthly gross.

Paid hourly with variable hours

If you receive an hourly salary and work different hours every week, you can still calculate your monthly gross income using an average or best estimate.

You can also factor in overtime pay or recurring bonuses and commissions. The easiest way is to calculate how much overtime pay, bonuses, or commission you received throughout the year. Add this number to your annual gross income and divide by 12. In this way, this additional income will be part of the calculation for monthly gross income.

Using gross income when applying for a loan

Knowing your gross income is important for a variety of reasons. For instance, you will need to know it to get a loan, file your taxes, and create a budget. Above all, lenders and landlords will likely request your gross income when determining whether to issue you a loan or rent property to you. Lenders will use this metric to determine if you are reliably able to pay back the amount owed each month.

The 28% rule

For example, lenders will use the 28% rule to determine how much of a mortgage you can afford. According to the 28% rule, you should spend no more than 28% of your monthly gross income on your mortgage payment. A lender may do the calculation to determine how much you can afford on your mortgage.

Calculate it for yourself: multiply your monthly gross income by 28%, or 0.28. For example, if your monthly gross income is $2,000, your monthly mortgage payment should be no more than $2,000 multiplied by 0.28, or $560.

According to the 28% rule, you should spend no more than 28% of your monthly gross income on your mortgage payment”

Using gross income when filing taxes

You should also know your gross income when filing your state and federal taxes. You will report your annual gross income and use that figure as the starting point before subtracting deductions to determine your tax owed.

On your tax form, after you subtract above-the-line tax deductions, you will arrive at an adjusted gross income (AGI), which then becomes taxable income. If you qualify for any deductions or exemptions, your taxable income will be less than your gross income.

Pro Tip

Don’t include alimony and separate maintenance payments when calculating your gross income for tax purposes. Also, make sure you file your taxes correctly to maximize your returns. We recommend reading this article about common mistakes to be as prepared as possible.

Using gross income for budgeting and retirement prep

Lastly, gross income is important for an individual trying to budget and save for retirement. Calculating it is a simple measure, and it will provide a rough estimate of how much you have available to save for retirement and monthly budgeting purposes.

Use more than your gross income when budgeting. Do not solely rely on your gross income to build a sustainable budget. A gross income does not factor in how much you will have to pay for taxes, so it is not an accurate reflection of “spendable cash.” Your net income — which factors in taxes — is the best measure to use for building the most accurate budget.

Gross income for a business

Gross income for a business is slightly different from that of an individual. This type of gross income is also known as gross margin or gross profit. A company’s gross income is the revenue from all goods and services minus the cost of goods sold (COGS).

Gross income is a line item found on a company’s income statement. However, if this line item is missing, you can calculate it using the following formula:

Gross income = Gross revenue – COGS


Gross income is an important metric for businesses because it tells companies how much profit they’ve made on their products and services.

Importantly, COGS only factors in the cost of producing or providing the services and goods. COGS does not take into account additional business expenses, such as administrative costs or taxes. Thus, annual gross income is only a reflection of how much income a company receives beyond what it spends to produce its goods or services. It is not a reflection of how much money that business makes per year. It doesn’t even tell you if the company makes a profit overall.

Example calculation of annual gross income for a business

Remember that annual gross income for a business is gross revenue minus cost of goods sold. For a simple example, let’s say that a business reported $800,000 in product sales and the cost to produce those products was $200,000. The annual gross income for this business would be $600,000.


Annual gross income = $800,000 – $200,000 = $600,000


Example calculation of monthly gross income for a business

We can easily determine this business’ monthly gross income by dividing its annual gross income by 12. Using the example above, a business with an annual gross income of $600,000 will have a monthly gross income of $50,000.


Monthly gross income = (Annual gross income) / 12 = $600,000 / 12 = $50,000


Gross income versus net income

You have learned about gross income, but you might be wondering how gross income differs from net income. The two terms are closely related. For individuals, net income is your gross income minus taxes and deductions. For businesses, net income is your gross income minus all business expenses and deductions.

How to calculate our net income?

If you are an individual looking to calculate your net income you will need to know the following information:

  • Gross income
  • Income taxes
  • Insurance payments
  • Contributions to retirement accounts
  • Social Security taxes
  • Medicare taxes
  • Other legal obligations, like loan payments and child support

For example, if your annual gross income is $50,000 and you have $6,000 of taxes and other deductions, your annual net income is $44,000.

You can think of your net income as your “spendable cash” — or the total amount of money you have available to spend or save in a given year. For this reason, your net income is a better figure than gross income to use as you build a budget.

Business gross income

If you are a business looking to calculate your net income, you should know the following pieces of information

  • Gross income
  • Business expenses (travel costs, marketing costs, tax payments, office expenses, payroll, etc.)
  • Other deductions, such as legal or professional fees.

Add these taxes and expenses and subtract that value from your gross income.

As a business, knowing your net income helps evaluate how sustainable your current business model is. If your gross income is much higher than your net income, you might want to consider eliminating or reevaluating certain expenses.

Key takeaways

  • Monthly gross income is an individual’s total income — including salary, tips, bonuses, commission, interest, and other revenue — over a month. It is most easily calculated by dividing annual gross income by 12.
  • Gross income for a business is the total amount of revenue from a service minus the COGS, or the cost of (producing or providing) goods and services.
  • Gross income is a simple value to calculate because you do not factor in your taxes or deductions. However, this simplicity is has a drawback. Gross income is not the best budgeting tool because it does not reflect your actual “spendable cash” in a given period.
  • Individual annual gross income is the starting point for your tax return. After deductions, annual gross income becomes adjusted gross income (AGI), then, finally, taxable income. Your taxable income can be less than your annual gross income.
  • If your or your business’s net income is significantly lower than your or its gross income, you should reevaluate your expenses to be more sustainable in the long term.
View Article Sources
  1. Calculating Your Gross Monthly Income Worksheet — NeighborWorks America
    A clear and simple worksheet for calculating your monthly gross income given various payment schedules. 
  2. How to Calculate Yearly Gross Income — Topeka Housing Authority
  3. Alimony and Separate Maintenance – IRS
  4. Program Operations Manual System DI 10505.005 Determining and Verifying Gross Earnings from Employment — Social Security Administration
  5. Relevant article(s) from the career site Indeed.
  6. 10 Common Mistakes When Filing Your Taxes — SuperMoney
  7. Average Millennial Income Is Up, But At What Cost? — SuperMoney
  8. How to Calculate Your Adjusted Gross Income — SuperMoney