How to calculate annual income

Calculating your annual income can be as simple as adding up all the money you make in a pay period and multiplying it by the number of pay periods in a year. 

But it can be a little more complicated depending on what kind of job you have, how many income sources you have, how often you get paid and whether you’re calculating your gross or net income for the year. 

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. Annual net income is the amount that’s left after taxes and other deductions are taken out.

• To calculate your annual gross income, 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 income whatever is withheld in federal, state and local taxes, along with other deductions.

Annual income is how much money you make in a year. It might include wages, tips, gains on proceeds from stock sales and interest from financial accounts. And the definition of annual income can vary slightly depending on whether you’re referring to annual gross income or annual net income. 

• 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 use annual compensation as a way to measure your earnings. Annual compensation encompasses your yearly salary plus any other benefits you receive from your employer in financial perks, like bonuses, commissions, paid time off and more.

Understanding how much money you have coming in throughout the year can make it easier to establish a budget. And sticking to a budget can help you meet your financial goals, like buying a house or building an emergency fund. Plus, if you have multiple sources of income, you can see how these income streams add up to your total annual income. 

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

How you calculate annual gross income is slightly different depending on whether you earn an annual salary or an hourly wage.

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:

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. 

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

If you’re paid hourly, you can calculate your annual gross 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.

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:

1. 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.

2. To determine your weekly pay, figure out how many hours you work per week. If it varies, calculate the average number of weekly hours worked.

3. Figure out your annual gross income from your 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

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: 

• Federal, state and local income taxes

• Social Security and Medicare taxes

• Retirement contributions

• Health insurance premiums

Your pay stub should show what deductions have been taken out of your paychecks and in what amounts.

An online calculator may help give you a more comprehensive idea of your annual income. One example is the annual income calculator from HealthCare.gov, which takes income and expenses like student loan interest and individual retirement contributions into account.

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

You can calculate your annual gross income or annual net income by knowing a few numbers. And 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 make it easier to effectively budget and reach your financial goals.