What Is Gross Monthly Income? | Definition & Simple Calculator

Gross monthly income is the total payment that an individual receives by the end of every month. This payment is in total before any subtractions, e.g., tax, social security, health insurance, and retirement contributions:

• The term is used by lenders to assess if an individual has the financial ability to pay back a mortgage, car loan, or even a credit card.
• Renters and landlords use the term to assess if an individual will be able to pay their monthly rent.
• Employers are the ones that use the term the most in terms of job offers so that employees are able to analyze different payment offers easily.
• The term used is a figure that illustrates the financial capability of a person without the expenses or withholdings taken into consideration.

The methods you use to calculate gross monthly income varies based on the type of work you are engaged in:

Salaried Employees: For individuals that receive a fixed yearly payment, you only need to divide the amount by 12.

Example: 60,000÷12=5,000 gross monthly income

Hourly Employees: In cases when hourly work is available, total hours worked in a week are multiplied by the hourly wage, which is then multiplied by 52. This is then divided by 12.

Example: 20/hour×40hours/week×52÷12=3,467 gross monthly income

Freelancers or Gig Workers: Self-employed workers tend to earn income in a more ‘lumpy’ fashion. In this case, all income added throughout the year (before expenses or tax) is available, which is then divided by 12 to provide a monthly figure.

Example: 72,000÷12=6,000 gross monthly income

Understanding the difference between net income and gross income is key.

• Gross income = your total earnings before deductions.
• Net income = your take home earnings after tax and withholdings.

Gross income is important and needed by lenders and applications because it demonstrates financial ability. For personal budgeting, net income is more relevant because it demonstrates actual spending ability.

Many financial decisions are made based on your gross monthly income, including the following:

• Credit worthiness – lenders use your income and debts to calculate your DTI.
• Housing eligibility – landlords typically need an income that is a certain multiple of the monthly rent.
• Loan approvals – banks use your gross monthly income to determine how much they can lend.
• Government benefits – there are certain programs that set eligibility parameters using the gross income thresholds.

If you need any assistance with taxation and accounting subjects, contact Dimov NYC CPA today. Our team stands ready to present expert assistance.