How Do I Know My Income? Gross, Net, and AGI

To know your income, first figure out which version the person asking actually wants. There are three that come up constantly: gross income (everything you earn before anything is taken out), net income (what lands in your bank account after taxes and deductions), and adjusted gross income, or AGI (a tax-return figure that sits between the two). A mortgage lender usually wants gross. A landlord often wants net. The IRS works from AGI. Same person, same year, three different numbers.

Gross Pay vs. Net Pay

Your gross pay is your total compensation before anything is subtracted. Your net pay is what remains after two categories of deductions: mandatory ones required by law and voluntary ones you elected.

Mandatory deductions come out of every paycheck. Federal income tax is withheld based on your W-4.1Internal Revenue Service. Tax Withholding for Individuals Social Security tax takes 6.2 percent of wages up to $184,500 in 2026.2Social Security Administration. Contribution and Benefit Base Medicare tax takes another 1.45 percent with no cap, and high earners pay an extra 0.9 percent on wages above $200,000 (single) or $250,000 (married filing jointly). Most states withhold state income tax, some cities add local tax, and any court-ordered wage garnishment comes out too.

Voluntary deductions only apply if you opted in: traditional 401(k) contributions (pre-tax, up to $24,500 in 2026, or $31,000 at age 50 and older)3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500, health insurance premiums (usually pre-tax), union dues, and Roth 401(k) contributions (after-tax).

So when someone asks for your income, the first question is which side of those deductions they mean. Mortgage lenders almost always want gross because that’s the base they use for underwriting ratios. Landlords and personal-loan lenders often want net because it reflects what you can actually spend each month. If the form doesn’t say, ask.

What Adjusted Gross Income Means

Between gross income and taxable income sits the figure the IRS calls Adjusted Gross Income. You calculate it by taking your total income and subtracting specific adjustments — student loan interest (up to $2,500), educator expenses (up to $250), traditional IRA contributions, half of self-employment tax, and a handful of others.4Internal Revenue Service. Adjusted Gross Income AGI appears on your Form 1040. If a form asks for AGI, you don’t need to compute it from scratch; pull last year’s return and read the line.

Modified Adjusted Gross Income (MAGI) takes AGI and adds certain items back. The add-backs depend on which benefit is being calculated. You’ll see MAGI come up for Roth IRA eligibility, deductibility of traditional IRA contributions, education credits, and the premium tax credit for marketplace health insurance.5Internal Revenue Service. Modified Adjusted Gross Income

After subtracting the standard deduction ($32,200 for married couples filing jointly in 2026) or itemized deductions from AGI, you arrive at taxable income, which is what your federal tax is actually calculated on.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026

What Counts as Income and What Doesn’t

The IRS defines gross income as “all income from whatever source derived, unless excluded by law.” That’s broader than most people expect. Federal tax law treats all of these as income:

  • Wages and salary from any employer, including overtime
  • Tips and gratuities, including cash tips under $20 in a month that you weren’t required to report to your employer7Internal Revenue Service. Topic No. 761, Tips – Withholding and Reporting
  • Self-employment earnings — freelance payments, gig work, business profits
  • Investment income: dividends, interest, and capital gains8Internal Revenue Service. Reporting Capital Gains
  • Rental income from tenants
  • Retirement distributions from traditional 401(k)s or IRAs
  • Commissions and bonuses

A few things are commonly mistaken for income and shouldn’t be counted. Gifts and inheritances aren’t income, though any interest or dividends the property later generates is.9Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income Life insurance death benefits paid to you as a beneficiary are generally not taxable.10Internal Revenue Service. Life Insurance and Disability Insurance Proceeds VA benefits and Supplemental Security Income are excluded from gross income. Interest on most municipal bonds is exempt from federal tax. And loan proceeds aren’t income; you’re borrowing, not earning. That last one matters because people sometimes count deposits as income when filling out applications.

Doing the Math From a Paycheck

If you’re salaried, your annual gross is the number on your offer letter. Add any bonuses, commissions, or other compensation you received during the year for the full picture.

If you’re hourly, multiply your rate by 2,080 (40 hours a week times 52 weeks). At $25 an hour, that’s $52,000 a year before deductions.

To convert a single paycheck to a monthly or annual figure, the multiplier depends on your pay schedule:

  • Weekly: multiply by 52 for annual, or 4.33 for monthly.
  • Biweekly (every two weeks): multiply by 26 for annual.
  • Semimonthly (twice a month, e.g., the 1st and 15th): multiply by 24 for annual.
  • Monthly: multiply by 12 for annual.

The biweekly-versus-semimonthly distinction trips people up. Every other Friday gives you 26 checks a year and two months with three paychecks. The 1st and 15th gives you exactly 24. Using the wrong multiplier throws your annual total off by about 8 percent.

Averaging Variable Income

If your earnings fluctuate — commissions, freelance work, seasonal hours — lenders and benefit programs typically want a monthly average. Add up all variable income from the previous 12 months (many lenders prefer 24) and divide by the number of months. Someone who earned $36,000 in freelance work over the past year has a monthly average of $3,000. Do the same for each irregular stream, then add those averages to your stable monthly pay.

If You’re Self-Employed, Gross Receipts Aren’t Income

This is where people most often get the number wrong. Your gross receipts — everything clients paid you — aren’t your income. Your income is what’s left after subtracting legitimate business expenses like supplies, software, office rent, and mileage. That calculation lives on Schedule C, and the bottom line (net profit) is your self-employment income.11Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040)

That net profit then faces self-employment tax on top of regular income tax. Because you’re both employer and employee, you pay both halves of Social Security and Medicare, a combined 15.3 percent on 92.35 percent of net earnings.12Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax You can deduct the employer-equivalent half when calculating AGI, which lowers your income tax.

No employer withholds taxes from freelance payments, so you’re generally required to make quarterly estimated payments if you expect to owe $1,000 or more when you file. Missing those payments produces an underpayment penalty even if you pay everything by April.13Internal Revenue Service. Estimated Taxes Plan for it from your first invoice.

Documents That Show Each Version of Your Income

The paperwork you need depends on who’s asking and which version they want.

Pay Stubs

Pay stubs are your real-time proof. They show current-period earnings, year-to-date totals, and every deduction broken out individually, so you can read gross and net directly off the same page. Most employers post them through an online payroll portal.

Tax Forms You Receive

Not receiving a form doesn’t make the income tax-free. If a freelance client paid you $400, they aren’t required to send a 1099-NEC, but you’re still required to report the $400.18Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC

Your Tax Return and IRS Transcripts

For AGI, look at your Form 1040 from the most recent year you filed. When a lender wants to verify what you actually reported to the IRS rather than what you claim, they’ll request a tax transcript. The main types:19Internal Revenue Service. Transcript Types for Individuals and Ways to Order Them

  • Tax return transcript: most line items from your filed return. The one mortgage lenders request most often. Current year plus three prior.
  • Wage and income transcript: data from all the information returns filed about you (W-2s, 1099s, etc.). Current year plus nine prior.
  • Tax account transcript: basic filing data plus any changes made after you filed, like adjustments from an audit.

You can order transcripts online through your IRS Individual Online Account, by phone at 800-908-9946, or by mailing Form 4506-T.

Why the Right Number Matters

Overstating income on a mortgage application to qualify for a larger loan is bank fraud. Federal law makes it a crime to obtain money from a financial institution through false representations, punishable by a fine of up to $1,000,000, up to 30 years in prison, or both.20Office of the Law Revision Counsel. 18 USC 1344 – Bank Fraud Lenders cross-check stated income against IRS transcripts and employment verification, so discrepancies surface.

Understating income creates the opposite problem. On a tax return, unreported income triggers penalties and interest when the IRS matches your filing against the W-2s and 1099s it already has. Federal law requires you to file an accurate return reporting all taxable income.21Office of the Law Revision Counsel. 26 USC 6011 – General Requirement of Return, Statement, or List On benefit applications, understating income to qualify for a program you wouldn’t otherwise get is its own category of fraud.

When you’re asked for your income, work out which version they want, pull the document that carries that number, and copy it exactly. The math isn’t complicated once you know where to look. The mistakes happen when people guess instead of checking their records.