When you receive your paycheck you're probably most concerned with your take-home pay. After all, that is what you'll live off until your next check arrives. But whether you work at a salaried or hourly job, it's also important to take note of your "gross wages," the amount before deductions.
Gross wages is the total amount of money you earn from a job that gives you a paycheck. That means before taxes or other deductions. For example, if you work 40 hours a week at $15 per hour, your gross wages are $600 per week, $2,400 per month or $28,800 per year. Your employer is required by law to deduct certain items -- taxes primarily -- from your gross wages before issuing your paycheck.
Deductions from Gross Income
The employer deducts Social Security, federal and state taxes from your gross wages (except in the rare case that you're exempt from withholding taxes). If the employee elects to have money deducted from his wages for retirement or other savings, that amount is also deducted from gross income. The employer may also have orders from a third-party company or government authority to deduct additional money, like alimony payments or a debt obligation, from gross income.
When Does Gross Wages Matter?
In most cases, you'll be more concerned with net income over gross income. Net income is what you take home and use for your bills and other needs. But you'll need to know your gross wages in a couple of key situations. For one, if you apply for a loan, the creditor commonly asks for your gross income.You also need to know your gross wages when you file your taxes — this information is listed on your W-2 form.
Adjusted Gross Income
The gross wages for the year listed on your pay stubs or W-2s are not always equal to your adjusted gross income for tax purposes. Adjusted gross income is your gross wages plus other forms of income (like from a side business or interest income) less certain deductions. Those deductions might include educator expenses, work-related moving expenses, and student loan interest.