Gross vs. Net Income: What’s the Difference?
Have you recently started working and earning income? Congratulations! You’ve probably heard of gross income and net income. Now that you're working, it’s important to know the difference. We’ll review each one and share how both affect your path to financial independence through work.
Gross vs. Net Income
Gross income includes your entire income before any deductions are taken. For example, if you are working at a job where you're paid an hourly wage, your gross income is the hourly rate you're paid multiplied by the number of hours you've worked during a pay period.
For instance, if your pay period is one week and you work 20 hours at $15.00 per hour: $15.00 x 20 hours = $300.00. That means that your gross income for that pay period is $300.00.
However, you know that you don’t receive $300.00 on payday. That's because your paycheck will reflect your net income, or the amount of money left after deductions like taxes, employee benefits, or retirement plan contributions that have been taken out of your paycheck. Taxes and other deductions vary by state and city, and other deductions may vary by employer. Your pay stub should include a breakdown of what deductions have been taken out of your paycheck, and the amount of each deduction. It's a good idea to review this information to make sure your paycheck is accurate.
Why is Net Income Important?
Your net income is the amount of money available to you from your paycheck and is the money available to you for living expenses such as food, housing, and transportation. Use your net income when planning a budget for living expenses. This is a more accurate number of how much money you have available to spend or save.
Reporting Wages to Social Security
It is your responsibility to report your work and wages to Social Security if you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). When reporting your wages, you will report your gross income. Social Security looks at gross income to determine whether you're meeting or exceeding substantial gainful activity (SGA). If you receive SSDI and are still in your Trial Work Period (TWP), Social Security looks at your gross earnings to determine if you've used one of your TWP months. Promptly reporting wages and work will help Social Security ensure you receive the benefits to which you are entitled.
Knowing the difference between your gross and net income is one key to successfully managing your finances.
How Can Ticket to Work Help
Social Security's Ticket to Work (Ticket) Program supports career development for people ages 18 through 64 who receive Social Security disability benefits (SSDI/SSI) and want to work. Through this free and voluntary program, eligible participants can work with service providers to receive the services and supports they need to find and maintain employment as they move toward financial independence through work.
The Ticket Program can support you with different forms of employment, including part time, seasonal and full time. Through the Ticket Program, a service provider such as an Employment Network (EN) can help you understand your income and properly report earnings to Social Security.
Learn More
To learn more about the Ticket to Work Program, call the Ticket to Work Help Line at 1-866-968-7842. For callers who are deaf, hard of hearing, or have a speech disability, call 1-866-833-2967 (TTY). Hours are Monday through Friday, 8 a.m. - 8 p.m.; or visit choosework.ssa.gov.
