How to calculate annual income
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 things 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:
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Annual income is the amount of money you make in a year. It can be expressed as annual gross income or annual net income.
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Annual gross income is what you receive before taxes and other deductions. Annual net income is the amount that’s left after taxes and other deductions are taken out.
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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 from your gross pay whatever is withheld in federal, state and local taxes, along with other deductions.
What is annual income?
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:
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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.
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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 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. You may also have other types of income, such as gains on proceeds from stock sales or interest from financial accounts.
How do you calculate your annual income?
How you calculate your annual income can depend on a few things, including:
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The type of job you have
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How many jobs or sources of income you have
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How often you get paid
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Whether you want to calculate your annual gross income or annual net income
How to calculate annual gross income
How you calculate annual gross income is slightly different depending on whether you earn an annual salary or an hourly wage.
How to calculate annual gross income from an annual salary
The basic formula to calculate annual gross income as a salaried employee is:
Gross pay x Number of pay periods per year = Annual income
If you’re paid about the same amount each pay period, you can calculate your annual gross income by following these steps:
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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.
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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.
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Multiply your gross pay by the number of pay periods you’ll have in that year. The resulting number is your annual gross income from salary 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 x 26 = $72,800
How to calculate annual gross income from an hourly wage
The basic formula to calculate annual gross income as an hourly employee is:
(Hourly pay x Hours per week) x Number of weeks worked = Annual income
If you’re an hourly employee or have more irregular paychecks, you can use this approach:
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Determine your hourly wage by referring to your most recent pay stub and dividing your gross income by the number of hours worked in that pay period.
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Calculate how many hours you work per week—or, if it varies, the average number of weekly hours worked—to determine your weekly pay.
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Figure out your annual gross income from salary 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, the calculation might look like this:
($15 x 35) x 52 = $27,300
If you have additional sources of income, such as bank interest, this should be added to the calculated gross income from wages.
How to calculate annual net income
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 your annual net income, take your annual gross income and subtract any deductions. Deductions often include things like:
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Federal, state and local income taxes
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Social Security and Medicare taxes
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Retirement contributions
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Health insurance premiums
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.
Using an annual income calculator
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.
Why is it helpful to calculate your annual income?
Understanding how much money you 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 when you’re applying for a loan, applying for your city’s affordable housing program or paying child support.
Annual income FAQ
Explore the answers to these frequently asked questions on annual income.
Is annual gross income different from adjusted gross income?
Annual gross income and adjusted gross income (AGI) aren’t typically the same. AGI is calculated under IRS rules and is the starting point for your taxable income on your tax return.
Does your annual income affect your credit scores?
Your annual income isn’t a factor in calculating your credit scores. But your income may impact your ability to borrow money due to your debt-to-income (DTI) ratio. Your DTI ratio is often used by lenders to review and approve a loan or credit card application.
How do I calculate my annual income if I get paid biweekly?
If you get paid biweekly, you can figure out your annual gross income by multiplying your gross biweekly pay by 26, the number of times you’re paid per year.
How do you calculate annual income from hourly wage?
If you’re paid an hourly wage, you can calculate your annual income by multiplying your weekly pay by the number of weeks you work in a year. You can work out your weekly pay by multiplying your hourly wage by the number of hours you work per week.
Key takeaways: Calculating 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 on paper how much money you make annually, 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.
