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- Annual income is the total amount of money you earn in one year.
- You need to know your annual income if you apply for a loan or credit card.
- Knowing your annual income can help you budget for short- and long-term expenses.
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Annual income is the total amount of money you earn in one year. A year can be a calendar year — January through December — or your company’s fiscal year. Income usually includes wages, salaries, commissions, fees, tips, bonuses, Social Security benefits, and other money you earn regularly.
You’ll need to know your annual income when you apply for a loan or credit card or to determine child support or alimony payments. It’s helpful to know for personal financial planning too, says Eric Phillips, senior director of financial partnerships and strategic insights at Human Interest, a 401(k) provider.
Here’s how to calculate your annual income depending on how often you’re paid.
How to calculate annual income before taxes
Annual income can be gross or net:
- Gross annual income is your income before taxes, benefits, and deductions.
- Net annual income is your income after taxes, benefits, and deductions.
Grade: The government doesn’t require businesses to provide employees with paid time off. However, many employers offer five to 15 days of paid time off annually for holidays, personal days, and sick days. That means many employees work about 49 or 50 weeks per year instead of the full 52.
To calculate your gross annual income, multiply your monthly or weekly gross pay by the number of times you get paid per year. There are 12 pay periods if you get paid once a month or 52 if you get paid weekly.
Here are the simple formulas for calculating your gross annual income:
- Gross annual income = gross monthly pay x 12
- Gross annual income = gross weekly pay x 52
Adjust the equation accordingly if you work fewer than 12 months or 52 weeks per year. For example, if you take off four weeks without pay, multiply your weekly pay by 48 weeks instead of 52.
Semi-monthly vs. biweekly pay
Semi-monthly pay is when you get paid twice a month, typically on the 15th and last day of the month. It comes out to 24 pay periods a year (12 months x 2 = 24).
Biweekly pay is when you get paid every other week, usually on a Friday. It comes out to 26 pay periods a year (52 weeks / 2 = 26).
Say you make $2,000 each pay period. Here’s what your annual income would be, depending on whether you are paid on a semimonthly or biweekly basis:
Semi-monthly: $2,000 x 24 = $48,000
Biweekly: $2,000 x 26 = $52,000
Phillips says that if your yearly income is static, your semimonthly paycheck is likely to be slightly higher than it would be on a biweekly basis. For example, if your annual salary is $50,000, your semimonthly pay would be $2,083 versus $1,923 for biweekly pay periods.
How to calculate annual income after taxes and deductions
After taxes, benefits, and deductions are withheld, the remaining amount is called your net pay.
“While knowing your gross pay is helpful, knowing your net income after taxes and other expenses — including possible 401(k) contributions — is even more helpful in determining your real take-home pay,” Phillips says. “From there, you can budget other expenses, both short-term and long-term, because you’ll know the amount that you’ll get each paycheck.”
To calculate take-home pay, find the gross pay on your pay stub and then subtract the amounts your employer withheld for income taxes, payroll taxes, benefits, and deductions.
grade: Payroll deductions may include federal and state income taxes, payroll taxes (Social Security and Medicare taxes, or FICA taxes), insurance policies, retirement plan contributions, involuntary deductions (eg, child support and tax liens), and voluntary deductions, such as union dues and charitable donations.
From there, you can determine your net annual income by multiplying the difference by the number of pay periods. Here are the simple formulas:
- Net annual income = net monthly pay x 12
- Net annual income = net weekly pay x 52
Remember to adjust the equation if you work fewer than 12 months or 52 weeks per year.
Of course, the easiest way to determine take-home pay after taxes is to just look at your last pay stub, Phillips says. The amount will appear in the net pay (or similar) box.
Net annual income examples
Monthly pay: Say you get paid $4,000 per month ($48,000 per year) and your employer withholds a total of $1,323 each paycheck to cover income taxes, FICA taxes, and your 401(k) contribution.
Your net monthly pay would be $2,677 ($4,000 – $1,323).
Your net annual income would be $32,124 ($2,677 x 12).
Weekly pay: Say you get paid $1,000 per week ($52,000 per year) and your employer withholds a total of $325 each paycheck to cover income taxes, FICA taxes, and your 401(k) contribution.
Your net weekly pay would be $675 ($1,000 – $325).
Your net annual income would be $35,100 ($675 x 52).
How to calculate annual income from hourly wages
If you get paid by the hour, you can figure out your annual income in two steps:
- Multiply your hourly wage by the number of hours you work per week.
- Multiply the result by the number of weeks you work per year.
So, to put it another way:
- Annual income = hourly wage x weekly hours x weeks worked in a year
Say you earn $30 per hour and work 40 hours per week. Your annual gross income will be $62,400 if you work 52 weeks per year ($30 x 40 hours x 52 weeks) or $60,000 if you work 50 weeks ($30 x 40 hours x 50 weeks).
Note that if you work 50 weeks per year, you can just multiply the hourly wage by 2,000 hours to determine your gross annual income. That can be a quick calculation if you’re comparing hourly jobs and want to see what you might earn in a year. For example, if a job pays $25 an hour, the gross annual income would be $50,000 ($25 x 2,000).
Jean Folger has 15+ years of experience as a financial writer covering real estate, investing, active trading, retirement planning, and retiring abroad.
She is co-founder of PowerZone Trading, a company that has provided programming, consulting, and strategy development services to active traders and investors since 2004.
Previously, Jean was a real estate broker, an English teacher, and a trip leader for an adventure travel company.
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