How To Calculate Gross Monthly Income (With Examples)

By Sky Ariella - Jun. 23, 2022
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There are a few finance terms that you’ll need to know in order to function as a fiscally responsible adult or business owner, and one of these is “gross income.” You’ll also need to know how to calculate this number for any loan applications or financial reports you need to submit.

In this article, we’ll define gross income and show you how to calculate it for your household and your business.

Key Takeaways

  • For individuals and households, gross income is your total income before your taxes or any other deductions are taken out.

  • Side hustles, child support payments, and investments all count toward your gross income in addition to your salary.

  • For businesses, gross income is your total income minus your cost of goods sold.

How to Calculate Gross Monthly Income

What Is Gross Income?

Gross income is the sum total of salary, profits, and any other type of earnings before any taxes or deductions are taken out.

For individual employees, this means their total monthly payments before tax deductions. For businesses, the definition and calculation of gross income are a little different in that it is the total amount of income, minus the cost of goods sold.

Why Is Gross Income Important?

Gross income is important for both a businesses and individuals because it follows your financial history and accounting, which provides insight into your overall financial health. The reasons why it’s so crucial varies a little between individuals and businesses, but regardless, paying attention to gross monthly income can help improve or maintain financial situations in the future.

  • For individuals. Gross income figures will often be asked for when applying for a loan or credit line. They use it to determine whether you’re a trustworthy candidate with enough income to pay back any money you borrow to buy a large purchase like a house or car.

    They also may limit their offers to applicants whose gross monthly income is above a certain point to ensure they can afford their bills.

  • For corporations. Evaluating your company’s gross monthly income long-term can demonstrate your profitability and aid in proper bookkeeping. It can show how well your profit margins are doing.

    If your business is doing well financially, you can think logically about what your team has done to accomplish this. If your profits and earnings aren’t where you need them to be, it could be a good tool to figure out what you need to modify within your business.

How to Calculate Gross Monthly Income for Individuals

How you calculate your gross monthly income as an individual depends on whether you are paid an annual salary or an hourly wage.

For an employee who is paid a salary, the calculations are a little bit easier. Take your annual salary pre-tax and divide it by twelve to account for every month of the year.

The Equation Is: Annual Salary/12= Gross Monthly Salary

If you’re an employee who gets paid hourly, getting to your gross monthly income takes a little more math but is still fairly easy. First, you find your weekly pay by multiplying your hourly rate by the number of hours you work per week. Once you have this number, multiple by 52 to get your annual salary. Past this step, you can treat this number the same as someone who receives an annual salary and just divide it by 12.

The Equations Are:
Hourly Rate X Hours Per Week=Weekly Pay
Weekly Pay X 52= Annual Salary
Annual Salary/12= Gross Individual Income Per Month

Keep in mind that as an individual, any earnings you receive outside of your job can also go towards your gross monthly income.

Examples of additional income include:

  • A part-time or second job

  • A side hustle

  • Short-term contract work

  • Overtime, bonuses, or commissions

  • Tips

  • Investments

  • Social Security payments

  • Child support or alimony payments

  • Public assistance

  • Income from other members of your household

How to Calculate Gross Monthly Income for Businesses

When handling the calculations for a business’s gross monthly income, the focus is not on hourly pay or salary. It’s about the revenue traffic that’s coming into the company. To find this number, you subtract the cost of goods sold, also known as COGS, from the gross revenue. Gross revenue means all forms of income and earnings associated with your business in a given time-frame – for this purpose, a month.

The Equation Is:

Gross Monthly Revenue- Cost of Goods Sold (COGS)=Gross Monthly Income

Examples of Gross Income Calculations

Understanding equations can give you a good general idea about how to go about figuring out your individual or company’s gross income. Seeing these equations applied to relevant examples can further this understanding and help you use the formulas in your own life.

Example 1 – Hourly Employee Monthly Gross Income Calculations

Samantha works at a restaurant as a waitress 25 hours a week, where she earns $9 per hour. In addition to her hourly wage, she receives an additional $125 in tips every week on average.

Samantha is applying for a credit card and has been asked to provide her gross income per month to confirm her eligibility. She uses the following equations to find her gross monthly income and apply for the credit card.

First, Samantha determines her weekly pay by multiplying her hourly wage by how many hours she works per week.

25 Hours Per Week X 9 Dollars Per Hour = $225 Weekly Payroll

Since Samantha makes tips every week, she adds the number of tips she makes per week to her weekly pay.

225 Hourly Pay + 125 In Tips = $350

Then, she finds her annual salary by multiplying her weekly pay by 52.

350 Dollars Per Week X 52 = $18,200 Annual Salary

Finally, she divides her annual salary by 12 to determine her gross income per month.

18,200 Annual Salary / 12 = $1,516.70 Monthly Gross Income

Example 2 – Salaried Employee Monthly Gross Income Calculations

James works for Kingston Dental Group as a full-time office manager. He earns an annual salary of $60,000 per year for his supervisory role. In addition to his salaried position, James works freelance doing translation services on the side, which earns him an extra $700 per month.

James is planning on buying his first house with his wife and wants to consider his finances to determine what their budget should be and if they can fulfill loan requirements. He decides to calculate his gross monthly income to make the decision.

To arrive at his gross income per month, James divides his annual income by 12.

60,000 Dollars Per Year / 12= $5,000 Gross Income Per Month

Since James also receives monthly earnings from his freelance graphic design work, he adds that income to his gross monthly income.

5,000 + 700 = $5,700

With this information, James and his family can decide how much they can afford to pay on their mortgage per month and what their budget limitations should be.

Example 3 – Freelance Worker Monthly Gross Income Calculations

Jennifer is self-employed. She works as a freelance writer and illustrator, where she has an average of 3 clients per month on a rotating basis.

At the moment, her regular freelance clients earn her the following amounts:

  • Children’s Illustration Organization: $1,000 Per Month Set Rate

  • Nature Wildlife Magazine for Kids: $16 Per Hour for 20 hours a week

  • Digital Album Design: $150 per Project with 5 Projects per Month

Jennifer is in the process of trying to decide if she can afford to move into her own one-bedroom apartment. The apartment that she wants costs $1,200 in rent per month, which is $400 more than she’s paying at her current place with a roommate. To inform her moving decision, Jennifer decides to calculate her gross income per month.

Since Jennifer’s income is scattered between a few sources, she first will determine what her monthly rate for each freelance gig is. For the Children’s Illustration Organization, her rate is set at $1,000 per month.

For Nature Wildlife Magazine, she calculates her monthly income by multiplying her hourly rate by the number of hours she works per week.

16 Dollars Per Hour X 20 Hours a Week = $320 Per Weekly Payroll

She takes this number and multiplies it by 52 to get her annual salary, and then divides this final number by 12 to arrive at her monthly income for this contract position.

320 Weekly Wage X 52 Weeks in a Year = $16,640 Annual Salary

16,640 / 12 Months in a Year= $1,386.70

Jennifer’s gross monthly income from writing for Nature Wildlife Magazine is $1,386.70 per month.

For her final freelance gig, Jennifer is paid a standard rate per project she completes. She does exactly five projects a month, so to get her gross income per month from this position, she multiplies the rate per project by the number of projects she does per month.

150 Dollars Per Project X 5 Projects Per Month = $750

Her gross income from the Digital Album Design job is $750 per month.

To conclude her total gross monthly income across her freelance positions, Jennifer adds the value from each job she works.

1,000+1,386.70+750 = $3,136.70 Monthly Gross Income

Based on the calculations that Jennifer performs, she finds her gross income is $3,136.70 per month and decides that if she can budget properly, she will be able to afford to move into a new apartment that costs $1,200 per month in rent.

Example 4 – Business Monthly Gross Income Calculations

A popular clothing company recently did a collaboration with a music artist on a line of sweatshirts. The new line brought in total revenue of $5,000,000 in the first month after release.

The business spent the following amount on creating the clothing collaboration:

  • $300,000 on sourcing materials for the sweatshirts

  • $180,000 on the costs of labor

  • $130,000 on packaging and handling

With previous clothing lines, their average profit margin per month was $3,000,000. After tracking the monthly revenue for the project, the clothing company now wants to see what their gross income per month is to conclude if the collaboration with the music artist was successful and produced a higher profit or if they need to strategize differently for next time.

The clothing company calculates its gross monthly income by first getting a total number for their expenses during the project. They do this by adding together all of their costs.

300,00+180,000+130,000= $610,000 in Cost of Goods Sold (COGS)

Once they have their expense number, they subtract it from their total revenue for the time period.

5,000,000 in Revenue- $610,000 in Cost of Goods Sold = $4,390,000 in gross income

After evaluating their gross income per month after the new sweatshirt line, they found that their gross income of $4,390,000 improved their average numbers of $3,000,000 monthly.

What Is Net Monthly Income?

Net monthly income or net sales is the amount of money an individual or business earns in one month after accounting for deductions and expenses.

For an individual receiving a pay check from their employer, the most common deductions are:

  • State and Federal taxes

  • Health insurance premiums

  • Other insurance (life, long- or short-term disability, etc.)

  • Retirement plan contributions

  • Flexible spending account contributions

  • Medicare

  • Social Secruity

  • Childcare

Net income may also be referred to as “take-home pay,” because it’s the amount of money that you actually have in your bank after a given pay period.

While gross monthly income is important for loan applications and credit approvals, net monthly income is far more important when it comes to personal financing and budgeting.

For example, someone earning $48,000 as an annual salary shouldn’t assume that they have $4,000 a month to spend. Depending on what state they live in and how expensive their health insurance premiums are, their net monthly income might be closer to $3,000 a month.

Gross Income FAQs

  1. What does gross monthly income mean?

    Gross monthly income means your total income before any deductions. For example, if your salary is $4,000 a month and you make about $500 a month from a rental property you own, your gross monthly income is $4,500.

    You might only take home about $3,000 after taxes and healthcare benefit deductions, but your gross monthly income is the whole $4,500.

  2. How do I calculate my gross monthly income before taxes?

    You calculate your gross monthly income before taxes by adding together all of your monthly streams of income before tax, insurance, or any other deductions are taken out of it.

    This includes your job salary as well as any money you have coming in from sources such as investments, side hustles, or Social Security payments.

    If you only can add these streams of income up annually, simply take that number and divide it by 12. Voila: Your gross monthly income.

Final Thoughts

Knowing your gross monthly income or gross profit margin is important for applying for loans or need to figure out your taxable income. The bottom line is that lenders and the IRS needs to know how much money you’re paid before deductions are taken into account.

The calculations for determining your gross monthly income aren’t too advanced. With a bit of multiplying and dividing, you’ll be able to get a handle on the amount of money coming in each month, no problem.

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Author

Sky Ariella

Sky Ariella is a professional freelance writer, originally from New York. She has been featured on websites and online magazines covering topics in career, travel, and lifestyle. She received her BA in psychology from Hunter College.

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