Gross Income

Gross income is the starting figure in almost every income calculation. If a job is advertised at 50,000 a year, that is gross income. The amount that actually reaches your bank account will be lower, because income tax, social security contributions and sometimes pension contributions are deducted first.

For an employee, gross income usually includes basic pay, overtime, bonuses, commissions and some taxable benefits. Someone earning a salary of 48,000 plus a bonus of 4,000 has gross employment income of 52,000 for the year.

For a business, the phrase "gross income" can mean something slightly different. It is often used for revenue minus the cost of goods sold, which accountants usually call gross profit. Always check which meaning is intended.

Lenders often ask for gross income when deciding how much you can borrow, and many affordability ratios, such as debt-to-income, are calculated using it. Budgeting, however, is better done on net income, because that is the money you actually have to spend.