What’s Included in Your Gross Income

Gross income (also known as Total Income) is the number that’s going to be on Line 22 of your 1040 tax return.

I suggest looking at a 1040 while I explain line by line what your gross income will include.  The items in green apply to most of us millennials.

• Line 7) wages, salaries, tips, etc. (your employer(s) will send you a W-2 with all this information)
• Line 8) taxable interest (this includes stuff like the .01% interest that you get from your savings account!)
• Line 9) dividends (won’t really apply unless you have investments)
• Line 10) taxable refunds, credits, or offsets of state and local income taxes
  
• Line 11) alimony received (won’t really apply unless you’re divorced)
• Line 12) Schedule C net income or loss (won’t really apply unless you own your own business)
• Line 13) capital gain or loss (won’t really apply unless you have investments)
  
• Line 15 & 16) IRA distributions and pensions & annuities (won’t really apply unless you’re retired)
• Line 17) Schedule E income (won’t really apply unless you have income from a rental property, partnership, trust, etc.)
• Line 18) farm income or loss (won’t really apply unless you own an income producing farm)
• Line 19) unemployment compensation (won’t really apply unless you receive unemployment income from the government)
• Line 20) social security benefits (won’t really apply unless you’re retired or disabled and receiving income from our social security system)
• Line 21) other income (this is for all the other ways you might be getting income: winning the lotto, awards, 1099, gambling, jury duty, etc.)

Line 22 is all these items added together to make up your Total Income.

Next time I will cover what’s NOT included in your gross income.  Also known as what ways can you receive money without having to pay taxes on it.

FICA Tax

If you don’t usually look at your pay-stub, take a look at your most recent one now.  Look at the gross amount you received this pay period and multiply that by 7.65% and that amount should match the number that says FICA or FICA tax.  I just double checked my last pay-stub and yep, it matches exactly.

So what is FICA tax?  Wikipedia defines it as, “a United States Federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare”.  Basically, it’s where our Social Security and Medicare money comes from.

6.2% of FICA tax is for Social Security and 1.45% is for Medicare.  If you’re self-employed, you have to pay double the amount (15.3%) because you’re covering the employee and the employer portion for yourself.

If you made over $113,700 in 2013, it gets a little tricky.  And thanks to Obama Care, if you made over $200,000 in 2013, it gets even trickier.  Since most of us millennials aren’t making that much just yet, I’ll save that calculation for another day.