From a loan application to a rental application, or even a job offer, gross monthly income is a figure that tends to come up a lot. More often than not, lenders, landlords, and even financial institutions use that gross monthly income figure to assess the suitability of the applicant for credit, housing, or other financial opportunities. What does gross monthly income mean and how is it calculated?
Definition of Gross Monthly Income
Gross monthly income means the “untouched” money earned by an individual within a month. In other words, it is earned money -less deductions such as tax, Social Security, health insurance, and retirement contributions.
- Financial institutions use it to gauge how much they can loan for a mortgage, a car, or even credit for a card.
- Landlords use it to assess one’s ability to pay rent.
- Some employers offer gross income for easier salary comparisons.
- This is a fundamental figure that determines your earning potential, assuming there are no expenses or withholdings.
How to Calculate It
Depending on what type of work is being done, gross monthly income can be calculated differently.
Salaried workers: If the person is on a salary, that person’s income can be determined by dividing the fixed income by 12.
Example: 60,000÷12=5,000 gross monthly income
Hourly Employees: In this case, multiply each hour wage by the period worked in a week, then calculate it annually and convert it to a monthly pay.
Example: 20/hour×40hours/week×52÷12=3,467 gross monthly income
Freelancers or Gig Workers: For self employed professionals, income is likely to be unpredictable. Also, self employed average income earned is found by adding total yearly income before expense or tax.
Example: 72,000÷12=6,000 gross monthly income
Gross vs. Net Income
- Gross income is described to be total earnings before the deductions are made.
- Net income is income after deductions are made and is described as take home pay.
For budgeting purposes, net income is used. For lenders or application forms, gross income still matters as they take it to be the total money a person financially has.
Where to Find Gross Monthly Income
- In your pay slip, instead of calculating it, you can easily look for gross monthly earnings as its value is represented as gross pay, before the deductions.
- Employment contracts or offer letters usually detail either gross annual or gross monthly salary.
- Tax documents in the form of W2s for employees and 1099s for contractors capture gross earnings.
Why it Matters
Many aspects of your financial life are affected by your gross monthly income.
- Credit worthiness – it usually comes from lenders who examine your debts and DTI ratio.
- Housing eligibility – many landlords have a minimum income requirement that is a multiple of the rent.
- Loan approvals – it is used by many banks to determine how much a client can borrow.
- Government benefits – some programs have gross income limits.
If you require expert taxation aid, our professional team at Dimov Tax can present support. Contact us today for full compliance.
FAQs
What does gross monthly income mean?
Your total earnings for the month before any taxes or other deductions.
Is gross monthly income before or after taxes?
Before—it’s your pre-tax, pre-deduction pay.
How do I calculate my gross income if I’m self-employed?
Add your year’s pre-tax earnings (before expenses) and divide by 12—average multiple months if income varies.
Why is gross monthly income important for loans?
Lenders use it to size your loan and compute your debt-to-income (DTI) ratio.
Does gross income include bonuses or commissions?
Yes—include regular bonuses, commissions, and tips (lenders often average variable pay over time).