What is gross monthly income? Meaning, and how to calculate it

What gross monthly income means

The CFPB describes gross monthly income as the amount of money you have earned before your taxes and other deductions are taken out. It is the number lenders put under your monthly debt payments to work out a debt-to-income ratio.

On a pay stub it is not a line of its own. You work it out from your gross pay and how often you are paid.

How to calculate it

From a yearly salary, divide by 12. From a monthly paycheck, it is the gross pay on the stub. From a biweekly paycheck, multiply by 26 and divide by 12. Do not just double a biweekly check: two checks a month makes 24 a year, not the 26 you actually get.

From an hourly wage, multiply the rate by the weekly hours, by 52, then divide by 12. If your hours or tips vary, use an average of the last few months.

Gross monthly income and your bills

Gross monthly income is what rent applications and loan forms read. It is not what you can spend: your taxes come out first. For your own monthly plan, use net monthly income.

For a couple, adding both gross monthly incomes gives the household figure a lender would use. For splitting rent, many couples use each person's share of the total, which the guide on splitting bills by income covers.

A worked example: biweekly pay to a monthly figure

• Gross pay per paycheck: $2,500, paid every two weeks.
• Gross for the year: $2,500 x 26 = $65,000.
• Gross monthly income: $65,000 / 12 = $5,416.67.
• The shortcut mistake: $2,500 x 2 = $5,000, which is $416.67 short.
• A lender asks for debt payments of $1,200 a month. The ratio: $1,200 / $5,416.67 = 22.2%.