What are Gross Earnings?

Tricia Christensen
Tricia Christensen

Gross earnings are defined differently, depending on whether the term refers to individual or company earnings. How the term is defined also depends on certain tax laws that may vary by region and by who is inquiring about what is earned. Generally, this term can be perceived as the total amount of money made before taxes and other deductions are taken from it, but there are more nuances that may apply.

Man climbing a rope
Man climbing a rope

First, there is a difference between gross earnings for a company and for an individual. In most cases, an individual’s gross earnings are all money made prior to any taxes or eligible deductions that decrease taxable income. Sometimes this varies. Contributing to retirement accounts or things like health savings accounts may reduce the money that is considered taxable income and might be thought of as lowering gross income. This isn’t always the case and the definition could more strictly follow the concept that all money made, including money made on investments, is money grossed.

In contrast, gross earnings for a company is defined a little differently. The company’s expenses, like rent, employee salaries or inventory are usually deducted from the total amount it grosses for the year. Essentially, total earnings are defined by the following formula: money made minus qualifying expenses.

Both individual and company gross earnings are usually viewed as pre-taxed income and they’re also thought of as the money made before any eligible deductions are taken. For example, many people get a paycheck that lists gross earnings and then net pay, and things like payment to insurance companies, state and/or country taxes and contribution to 401ks, which all reduce net pay. Many times these reductions are significant and can represent huge differences between what is earned and what ends up being deposited in a bank.

Moreover, when people file income tax returns, they may take more deductions that reduce their amount of taxable income. It’s seldom the case that taxable income equals gross pay or net pay. Taxable income is usually much lower than either.

When people or companies want to borrow money, or rent or buy property, they’re frequently asked to assess their gross earnings rather than giving information about net pay or taxable income. This has sometimes led to problems because gross pay or earnings can be much higher than true take-home amounts. It’s advised that people and businesses budget carefully to make certain they can truly afford, based on net pay, any rental obligations or payments for borrowed money.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent wiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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Can we calculate gross contribution as net sales minus product and distribution costs. Would that be correct?

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