What is the difference between gross income and net income? Gross income is a total annual salary minus federal income tax. Just another earnings minus mandatory deductions. Net income is wages. Salaries and other earnings. Minus all tax and deductions. Wages might voluntary deductions.
The difference between gross income and net income lies in the deductions and taxes applied to the earnings. Gross income refers to the total amount earned before any deductions or taxes are applied, including federal income tax. It represents the total annual salary or wages received.
On the other hand, net income is the amount of money an individual or business actually takes home after deductions and taxes. It is the income remaining after deducting all mandatory deductions, such as federal and state income taxes, Social Security taxes, and Medicare taxes.
Net income also takes into account voluntary deductions such as retirement contributions, health insurance premiums, and employee-sponsored benefits. These voluntary deductions are subtracted from the gross income to calculate the net income or take-home pay.
In summary, gross income refers to the total earnings before any deductions or taxes, while net income represents the actual income or earnings after deductions and taxes have been applied.