How To Calculate Gross Income per Month (With Examples)
Updated March 10, 2023
Gross income refers to the total income you earn before taxes and deductions. This is not to be confused with net income, which is the amount of money you bring home after all taxes and deductions are subtracted. Calculating gross income can help individuals better plan their finances or help a company evaluate its financial viability when applying for a loan.
In this article, we discuss gross income, how to calculate it, example calculations and uses of gross income.
Gross income is the starting point for calculating many other types of income such as net income, adjusted gross income and modified adjusted gross income.
For individuals, gross income is all the money you earn before taxes, benefits and other payroll deductions are taken out of their wages.
Gross income (or gross profit) for a business is the amount the company makes before accounting for any expenses, like cost of goods sold or employees’ salaries.
What is gross income?
Gross income is the sum of all money earned during a particular period of time. This pre-tax amount includes all income an individual receives from all sources, including rental income, wages, dividends and interest income. For instance, if the revenue an individual earns in a month from providing consultancy services is $200,000, that figure represents the gross monthly income they earned.
You can calculate your annual gross income or monthly gross income as an individual or a business. Your gross income can be found on your paystub as the total take-home pay you earned in a given period before any taxes or deductions are removed. You can also find your total gross income on your year-end W2 or 1099 tax forms. before taxes and other deductions.
For businesses, gross monthly income refers to the gross monthly profit a company reports in its financial statements. The gross profit is a line item in a company's loss and profit statement. It equals the revenues a company generates from the sale of services or goods minus the cost of goods sold (COGS). The revenue sources might comprise income from:
Selling services and goods
Capital gains from investments
Income from rental property
How to calculate gross income
To calculate your gross income, add all of your income sources before any tax deductions or taxes. Gross income can include:
Income earned from side hustles
Supplemental Security Income (SSI)
Income from dividend payments
The formula for calculating gross income is:
Gross income = Σ income earned
Gross income for individuals
Here’s the formula for calculating your gross monthly income if you have a salary:
Gross monthly income = Gross annual income / 12
Calculating gross monthly income if you're paid hourly
Here’s the formula for calculating your gross monthly income if you’re paid hourly:
Gross monthly income = (Hourly pay x Hours worked per week x 52) / 12
Here are the steps for calculating gross monthly income as an hourly or salaried employee:
1. Determine how much you make
You can begin your calculation by listing all your income sources, whether on a sheet of paper or using a computer program, such as a spreadsheet. You can find this information on pay stubs, or you can ask a manager or human resources representative if you can't find a pay stub. Then, indicate the amount you earn from each source, being sure to include each income source only once. To help you add these figures later, consider listing them vertically.
2. Convert your yearly income into monthly income
Next, convert your income sources that pay hourly into an annual value before adding them to help ensure you use consistent figures. For instance, if your hourly pay is $15, you can multiply this amount by the number of hours you work per week. If you work for 40 hours per week, then your weekly income is $600. You then can multiply this amount by the number of weeks you work each year to determine the annual value of your hourly pay. If you work for 52 weeks in a year, then your gross income is $31,200.
Once you have all your income sources in their annual value, you can divide them by 12. This is to account for the number of months in a year. The equation looks like this:
Gross monthly income = Gross annual income / 12
3. Add all your monthly income
Finally, you can find your monthly income from each source. If you're using a computer program, you may be able to use an automated formula to ensure your calculation is correct. Regardless of how you add them, consider double-checking your results for accuracy. Including all decimals instead of rounding also can help make your calculations more accurate.
Gross income for businesses
Here's the formula to get the gross annual income:
Gross annual income = Gross revenue - Cost of goods sold
If you want to learn how to calculate gross income for businesses, consider the following steps:
1. Determine the company's annual revenue
You can check the company's records to find out the amount it earns per year. To obtain this amount, consider asking permission from the company's upper management. You also can work with financial and accounting professionals who might have quicker access to this information to make finding the company's annual revenue easier.
2. Get the cost of sales and subtract it from the annual revenue
Depending on the company, the cost of sales may include the services it delivers or the cost of goods it sells. To find this value, you might work with auditors, accounting professionals and managers in other departments. Once you have all the proper figures, you can subtract the cost of sales from the company's annual revenue to get the company’s gross annual income.
3. Convert the company's gross annual income into its monthly value
Finally, you can divide the company's gross annual income by 12. This result gives you the monthly average for its gross income. The equation for this calculation looks like this:
Gross monthly income = Gross annual income / 12
Related: How To Calculate Revenue Growth
Examples of gross monthly income calculations
Here are three examples of gross monthly income calculations to help you understand this concept better:
Calculating gross income for salaried individuals
Victoria works for International Solutions Inc. as a human resources manager. Heading a multistate team, she earns $90,000 per year. Additionally, she owns two rental properties, from which she earns $2,000 per month. Recently, a friend came to her with a business proposition, but it requires her to put in $3,500 per month. Victoria calculates her gross income per month to determine whether she can afford it. She decides to use the gross income formula for salary. To calculate this, she uses this equation:
Gross income per month = 90,000 / 12
Gross income per month = $7,500
With this figure in mind, she also can add her rental income of $2,000, which means Victoria's gross income per month is $9,500. She knows her average monthly expenses are around $4,000, so if she budgets appropriately, she can afford a $3,500 monthly expense.
Related: How Does Salary Work?
Calculating gross income for hourly individuals
Working in retail as a stocker, Charlie earns $10 per hour and works 20 hours per week. In his free time, he cuts grass for his friend's business, making around $200 extra dollars per month. Mateo's monthly rent for his apartment recently increased to $550. To determine whether can still afford his rent, Charlie this gross income calculation:
Gross income per month = 10 x (20 x 52) / 12
Gross income per month = 10 x (1,040) / 12
Gross income per month = 10,400 / 12
Gross income per month = $866.70
Next, he adds his grass-cutting income of $200 per month, which gives him a gross income per month of $1,066.70. If he budgets appropriately, he knows he can afford his new rent.
Calculating gross income for businesses
A large cosmetics manufacturer earned total revenue from a recent launch of $15,000,000. The costs for the launch included $500,000 for raw vegan materials, $25,000 for storage, $550,000 for labor and $300,000 for packaging. The company's finance department wants to determine its gross income to see whether it broke its record of $12,000,000. Before it can use the formula, the team members determine the company's COGS. It adds together the previously listed totals to discover its COGS is $1,375,000. With this figure, the company can now input its information into the gross income formula:
Gross income = 15,000,000 - 1,375,000
Gross income = $13,625,000
With this, the company learns its gross income of $13,625,000 beats its record of $12,000,000.
This article is for informational purposes only and does not constitute financial advice. Consult with a licensed financial professional for any issues you may be experiencing.
Uses of gross income
Whether an entity is a large corporation or an individual employee, gross income can be a powerful financial figure.
As an individual, your gross income is used for various purposes including:
Applying for rental housing: Landlords often ask for monthly gross income to determine whether applicants will be able to pay their rent on time.
Loan qualification: Lenders often use an individual's gross monthly income to determine whether they're a worthy borrower.
Determining taxes: Federal and state tax agencies use gross income to determine how much you owe in taxes.
Salary negotiations: Keeping your gross income in mind during the interview process can help you negotiate for a higher salary.
Establishing credit limit: Credit issuers often check your credit reports and gross annual income to determine your credit limit.
For example, those looking for a new home may need a substantial loan to afford a down payment. If the lender requires them to pay it back monthly, it's important for their gross monthly income to meet a specific standard for approval.
For businesses, gross income can measure their:
Profitability and show how much their COGS takes away from their total sales: The COGS can fluctuate, causing financial issues companies can fix if they find them early enough.
Debt-service coverage ratio: This figure allows entities to determine how much debt they can have at once.
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