How to calculate annual income

Anyone who's read through their paycheck knows that what you earn on paper isn't quite the same as what actually makes it into your bank account.

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 financial goals.

Key takeaways

• Annual income is the amount of money you make in a year. It can be expressed as annual gross income or annual net income, but these differ.
• 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. 
• Net income is the amount of money you take home after taxes and any deductions—like health insurance, Social Security and retirement savings—are taken out of your paycheck.

So, when we’re looking at it on a yearly basis, annual gross income is the amount you earn annually on paper. And 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 and other fringe benefits.

All of these factors can play an important role in helping you build responsible habits with your finances and set goals based on what you can realistically do with your money.

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 for each 

But if you’re a salaried employee who is generally paid the same amount each pay period, you can use the following steps to figure out your annual gross income.

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 per paycheck x 26 pay periods = $72,800 annual gross income

And if you’re an hourly employee or have more irregular paycheck, 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 52 weeks in a year. 

For example, if you earn $15 an hour and work an average of 35 hours every week, the calculation might look like this:

($15 per hour x 35 hours per week) x 52 weeks = $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 and 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.

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 IRA contributions, but you can still use it for other expenses to get an idea.

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 for meeting 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.

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 create and stick to a budget and decide if it’s worth pursuing additional income to help you reach your financial goals.