Gross Annual Income

Gross Annual Income Definition

Gross annual income refers to “all income you receive in the form of money, goods, property, and services that is not exempt from tax” during the calendar year, according to the Internal Revenue Service, the federal tax collection agency of the United States government.

For most people who receive a paycheck, i.e., employees, this is their annual salary, plus any additional income from any other source, e.g., interest/dividends earned from investments or other financial products, sale of goods or property, alimony, pension or rental income.

From this, adjustments (as defined by the tax authority) are deducted to arrive at the Adjusted Gross Income (AGI). Typical adjustments in the U.S. include money put toward retirement accounts such as an IRA, interest paid to student loans, tuition and certain business expenses.

Then individual deductions are applied to the AGI to calculate the taxable income, which is the amount to which the tax rate is applied to assess how much tax is owed. As with adjustments, allowable deductions vary from country to country, and can either be standardized (a fixed number) or itemized (varied according to the individual’s expenses).

How to Calculate Gross Annual Income

For Individuals

If an individual earns an annual salary from his or her employer, then the gross annual income is this figure plus additional income, as noted above.

To calculate this using paychecks, multiply the amount of the paycheck by 12, 24, 26 or 52, depending on the pay cycle. For instance, if the frequency of pay is once a month, then multiply by 12. If twice a month, multiply by 24. If weekly, then multiply by 52. Multiply by 26 if the pay cycle is every two weeks (as opposed to twice a month).

For hourly wage earners, the total depends on the number of hours worked in the year. For a full-time worker, 2000 working hours are typically assumed (8 hours per day x 5 days per week x 50 weeks). This is applied to the hourly rate.

For Businesses

For a business, first, the gross revenue must be calculated. The gross revenue is the total sales volume for the year, plus any additional windfall outside of the line of business (a settlement sum from a lawsuit, for example).

From the gross revenue, first, any returned merchandise/canceled services must be deducted. Then, the cost of goods sold (COGS) is deducted. Then any other income from other sources is added. The final figure is the gross income for the company.

Quiz

1. The Adjusted Gross Income is the total amount taxed.

A.
B.
C.

2. For a salary earner, their gross annual income is their annual salary.

A.
B.
C.

3. The gross revenue of a business is equal to the total profit.

A.
B.
C.

 

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