Total income is often inclusive of other sources than just what a person earns for working for himself or an employer. This alone makes it difficult to decipher exactly what constitutes income from employment. However, adding in terms such as gross and net can make it even more difficult to ascertain exactly what a person is looking for when she asks about the income an individual is earning.
Gross income represents all compensation that a taxpayer receives throughout the tax year. Alimony payments, interest, dividends, distributions from tax deferred retirement accounts, wages, salary, commission, rental or royalty payments, certain fringe benefits and unemployment compensation are all included in gross income. Total income for a taxpayer, prior to any reductions for taxes or deductions, is gross income. Line 22 on his tax return, Form 1040, shows this amount.
Annual Gross Income From Employment
As the list above concludes, a person earns income from many different types of sources. However, when he receives compensation in the form of wages or salary in return for a service he performs, he is receiving income from employment. The sum of these amounts for a whole tax year, even if from different jobs, before taking out any taxes is the annual gross income from employment.
Adjusted Gross Income
When calculating the amount of income on which the taxpayer incurs a tax liability, he is eligible to take certain deductions permissable by the Internal Revenue Service. Most of the deductions are applicable to his earning income throughout the year. However, there are a few, such as student loan interest and alimony paid which are personal. After taking these deductions, the taxpayer finds his adjusted gross income on line 37 of Form 1040. This amount is important in calculating many itemized deductions.
Net Annual Income from Employment
Over the course of a year, a person earning income from employment must pay payroll taxes to the Internal Revenue Service. Self-employed individuals pay it monthly or quarterly. Persons who work for an employer usually have the amount removed from each paycheck they receive. The total of all compensation a person receives from working, less any amounts that he must pay for taxes, is his net annual income from employment.