Net Income and Gross Income. What's the Difference?

The terms gross and net incomes are fairly feasible to understand but may seem confusing to others. We see these words on paychecks, statements, and are often requested by professionals for loan applications.

Net Income

Net income is the amount of wages workers get to keep after deductions such as federal taxes, state taxes, 401K, and social security. For example, you work 40 hours a week on an hourly rate of $20. After taxes and the air you breathe has been deducted you end up with $1,200. Your net income is $1,200 and could've been more if it wasn't for Uncle Sam and his gang.

Gross Income

Gross income is the opposite which means the amount of money you earned without taxes or deductions taken out. For instance, your monthly income might be $4,500 but you only receive a check for $3,650. $4,500 will be the Gross Income and like the example above $3,650 is your Net Income.

Other Terms

Same applies for the terms gross assets, gross revenue, gross profit, net profit, and net worth. That's why we hear net worth instead of gross worth. Individuals or Forbes rather know how much a person's worth after taxes and liabilities.

How Can I Tell the Difference?

If you have trouble between the two terms it's okay you're not alone because even billionaire Richard Branson didn't know for years. Here's a trick, the word gross has five letters and net is a three letter word. The word with the most letters has the most income. Gross income is the most because taxes has not been deducted. Net is the least because deductions were made. So next time you get a job offer and the salary is $50,000 it's really between $38,000-$43,000 a year.

It's not how much you make, it's how much you keep.