How to calculate annual income

Your annual income is generally how much money you earn in a year. In general, you can calculate your annual income by multiplying your pay rate by the number of pay periods you have in a year. But there are some nuances to consider when it comes to your actual take-home pay. 

Getting a handle on your annual income and being able to calculate your take-home pay can go a long way when it comes to understanding your finances, setting a budget and working toward your financial goals.

What you’ll learn:

• Annual income is the amount of money you make in a year. It can be expressed as annual gross income or annual net income.

• Annual gross income is what you receive before taxes and other deductions. And annual net income is the amount that’s left after taxes and other deductions are taken out.

• To calculate your annual gross income, you can multiply your gross pay by the number of pay periods you have in a year.

• To figure out your annual net income, subtract whatever is withheld in federal, state and local taxes—plus other deductions—from your gross pay.

Annual income is how much money you make in a year. But the definition and amount can vary slightly depending on the type you’re referring to: 

• Gross income is the amount of money you earn before taxes and other deductions. Annual gross income is the amount you earn annually on paper.

• Net income is the amount of money you take home after taxes and any deductions are taken out of your paycheck. Annual net income is how much you actually take home each year.

Some businesses also use annual compensation as a way to measure your earnings. This refers to your yearly salary plus any other benefits you receive from your employer in financial perks, like bonuses, commissions, paid time off (PTO) and other fringe benefits.

Calculating your annual income can depend on a few things, like: 

• The type of job you have

• How many jobs or sources of income you have

• How often you get paid 

Your calculation will also differ depending on whether you want to calculate your annual gross income or annual net income.

How you calculate gross annual income is slightly different if you’re a salaried or hourly employee:

The basic formula to calculate annual gross income as a salaried employee is:

Gross Pay ✕ Number of Pay Periods per Year = Annual Income 

If you’re generally paid the same amount each pay period, you can calculate your annual gross income by following these steps:

1. Figure out what your gross pay is by looking at your most recent pay stub. Gross pay is the amount you earn before taxes and any other deductions are taken out.

2. Determine how often you’re paid. Pay periods usually happen either weekly, biweekly (every two weeks) or bimonthly (twice a month). Once you know how often you’re paid, figure out how many times you’ll get paid that year.

3. Multiply your gross pay by the number of pay periods you’ll have in that year. The resulting number is your annual gross income or the amount you make before any taxes or other deductions are taken out.

For example, if you’re paid $2,800 on a biweekly basis—which comes out to 26 pay periods in a year—the calculation might look like this:

$2,800 ✕ 26 = $72,800

The basic formula to calculate annual gross income as an hourly employee is:

(Hourly Pay ✕ Hours per Week) ✕ Number of Weeks Worked = Annual Income 

If you’re an hourly employee or have more irregular paychecks, you can use this approach:

1. Determine your hourly rate by referring to your most recent pay stub and dividing your gross income by the number of hours worked in that pay period.

2. Calculate how many hours you work per week—or the average number of weekly hours worked if it varies—to determine your weekly pay.

3. Figure out your annual gross income by multiplying your weekly pay by the number of weeks you work in a year. 

For example, if you earn $15 an hour and work an average of 35 hours every week of the year, you’d make $27,300 in annual income:

($15 ✕ 35) ✕ 52 = $27,300

Once you know your annual gross income, you can figure out your annual net income. This calculation is typically simple and can help you understand how much of your paycheck is withheld or deducted for taxes, retirement and more. 

To calculate net income, you take your gross income and subtract any deductions. Deductions often include things like: 

• Taxes

• Retirement contributions

• Health insurance 

Your pay stub should provide you with all of this information—like which deductions you have taken out of your paychecks and in what amounts. This is similar to calculating net profit from gross profit, where you subtract operating expenses and taxes.

To get a more comprehensive idea of how much money you may bring home in a year, it might help to use an online annual income calculator. That’s because these calculators may take other factors into account when calculating your annual income.

HealthCare.gov, for example, has an annual income calculator that takes income and expenses into account. The calculator is set up to measure specific expenses, like student loan interest and individual retirement account (IRA) contributions, but you can still use it to get an idea of other expenses.

Understanding how much money you may have coming in throughout the year can make it easier to establish and stick to a budget. Plus, if you have multiple sources of income, you can see how these income streams add up to your total annual income. 

Calculating your yearly income can also help you see how your money is used for various expenses and how much may be left to meet financial goals, like buying a house or building an emergency fund. 

You might also need to know your annual income in specific situations, like if you’re applying for a loan, applying for your city’s affordable housing program or paying child support.

Explore the answers to these frequently asked questions on annual income:

You can calculate your annual income—gross or net—by knowing just a few numbers. But if you want to make the math easier, consider exploring online annual income calculators. 

While you may know how much money you make annually on paper, breaking down how much you actually take home can help you fully understand where all that money goes. That can make it easier to effectively budget and decide whether it’s worth pursuing additional income to help you reach your financial goals.