Personal Finance Basics

What is Gross Income?

Gross income is your total earnings before any deductions or taxes. For most people, it’s your salary or wages plus any other income. It includes all income from whatever source derived, including wages, salaries, business earnings, interest, dividends, rent, and capital gains, unless specifically excluded by law. Exemptions from gross income include certain life insurance payouts, inheritances, and municipal bond interest. Gross income is determined before any tax deductions or credits are applied to calculate Adjusted Gross Income (AGI).

Lenders evaluate gross income during the mortgage and auto loan underwriting process. Debt-to-income (DTI) ratios are calculated using monthly gross income, making it a critical metric for borrowing capacity.

Quick Facts

Legal DefinitionInternal Revenue Code Section 61

Tax ClassificationAll income sources before any deductions

Underwriting MetricBasis for Debt-to-Income (DTI) ratios

Exemption ExamplesMunicipal bond interest, inheritance

PRACTICAL EXAMPLE

An individual earns $75,000 in salary, receives $2,000 in stock dividends, and makes $3,000 from a side business. Their gross income for the tax year is $80,000. This is the figure reported on their tax returns before applying standard deductions or retirement adjustments.

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RELATED TERMS

Learn More Key Concepts

Net IncomeAn individual's take-home pay after tax withholdings, or a business's revenue remaining after all operating expenses and taxes.

Taxable incomeThe portion of an individual's gross income that is subject to federal income tax after all deductions are applied.

Filing statusA category that determines a taxpayer's tax filing requirements, standard deduction amount, and tax bracket thresholds.

DTI RatioThe percentage of a borrower's gross monthly income that goes toward paying recurring monthly debt obligations.

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