What Is the Meaning of Gross Salary?


In the business world "gross" refers to an amount before deductions are subtracted. For example, gross revenue refers to income received for goods and services prior to costs being deducted such as taxes or expenses. Net refers to what is left after the deductions. In terms of salary, net pay equals take-home pay and gross salary or pay is the amount of income prior to any deductions.

The IRS Definition

  • The Internal Revenue Service, IRS, uses gross income, or salary, as it is defined in the United States Code Title 26,61, "all income from whatever source derived." Under U.S. Title 26,61 examples of what are considered income source -- aside from regular wages from employment -- include interest earnings, income from rental properties, royalties, dividend distributions, annuity payments and income from all business dealings, among others.

Gross Income Versus Salary

  • In a report published by The University of California at Berkley, gross income is defined as "the sum of all income components reported on tax returns." Under this characterization, gross salary includes all the fringe benefits an employee may receive from their employer, such as bonuses, awards and vacation pay. However, other forms of income that must be reported on federal taxes will not qualify as salary. Interest on private investments, dividends and capital gains are common examples of gross income that is normally not considered salary.

Gross Versus Net Salary

  • When an employer interviews a prospective employee, the gross salary for a position -- as it is presented to the interviewee -- will most often not be what the worker actually receives as take-home pay. Gross salary includes federal, state and municipal income taxes, as well as medicare taxes, contributions to retirement plans and some insurance premiums. Thus, gross salary for many individuals may vary significantly from net salary or after-tax income.

Employer's Perspective

  • Benefits received by some employees may be categorized as salary components from the employer's perspective. For example, the portion of health insurance premiums, qualified retirement contributions and certain other benefits and perks with monetary value, provided by the employer, may be part of the employee's gross salary from an employer's viewpoint. However, the federal tax treatment of certain types of compensation and benefits may exclude the compensation from classification as income, and thus are not considered as part of gross income under the IRS definition.

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