Wages are taxable income, which means that what an employee takes home is usually less than what they have earned. While household income is based on net monthly income, there are times when it is necessary to know your monthly or annual income before taxes. Although many employees know their hourly rate and how much money they bring home each month, the monthly gross income figure is often less clear. Here are some FAQs to know to help you figure it out.
What Is Gross Income?
Gross income is the total amount of money in your paycheck before deductions like income taxes, Social Security and Medicare are taken out. After the tax deductions are taken out of your check, you are left with your net pay, but that is not necessarily what you will take home. Some deductions come out of post-tax income. Gross income is important because it can impact your credit score and it is how the IRS determines your taxes, according to the Corporate Finance Institute.
The amount of income left over for your take-home pay will depend on your hourly wages or monthly salary, tax filing status, dependents and certain tax deductions, insurance premiums, retirement accounts and garnishments such as child support or alimony.
You can quickly perform a few math calculations to determine how much income to expect each month before taxes and other deductions are taken out. You may then use the result of your calculation for lenders, credit cards or public assistance – essentially, anything that requires gross income information to determine eligibility.
How to Calculate Gross Monthly Income
Look at your pay stub and note the amount of gross pay you receive. If you receive a set salary, your gross income is the same amount each paycheck. If you are an hourly employee, use a pay stub that reflects the number of hours you work on average.
First, you need to determine the number of times each month you receive a paycheck. For example, if you are paid weekly or bi-weekly, you will receive an extra check twice per year. You must account for the extra check to generate an accurate gross income figure for the month.
According to the IRS wage calculation, if you receive a paycheck each week, you receive 4.3 paychecks each month. When you receive a bi-weekly paycheck, you are paid 2.17 times per month.
Multiply your single paycheck gross income by the number of times you receive a paycheck each month. If you are paid weekly, multiply the paycheck amount by 4.3, and if you receive a bi-weekly check, then you need to multiply the paycheck amount by 2.17. When you are paid semi-monthly, multiply your paycheck amount by 2. The end result is your gross income for the month.
What About Multiple Sources of Income?
You may be self-employed, work a side hustle or have a second job in addition to your day job. You might occasionally get overtime pay or commission. You may even receive income from sources like dividends, short-term capital gains or rental income. You'll need to add the amounts from these types of income to your regular full-time pay using pre-tax totals.
It can get a bit tricky calculating self-employment income, which can be less regular than hourly pay or monthly payments. The simplest method is to calculate based on 100 percent of what you received last year. If you expect to earn less this year, use 90 percent instead. This is also useful in calculating the amount of self-employment taxes you will owe on your tax return. If it is your first year of business, make your best estimate using available information and a calculator.
Luckily, online income calculators can perform the calculations for you, such as the one available through the payroll processor ADP. An online calculator can easily let you know your gross monthly income or annual salary with little effort. You only need to know the amount you are paid and the frequency of your pay.
This article was written by PocketSense staff. If you have any questions, please reach out to us on our contact us page.