What Is Annual Income? (With Examples)

Your annual income is a key piece of information that will help you make your budget, apply for loans, and pay your taxes. Whether you need to calculate it for your business or your personal finances, it’s important to understand all that’s included in your annual income.

In this article, we’ll explain what an annual income is and how to calculate it. We’ve even included example calculations for you to reference.

Key Takeaways:

• Annual income is the total amount of money earned in a year.

• Annual income can mean either gross or net income.

• To calculate net income based on hourly wages, multiply your wages by the number of hours worked in a year, or know your weekly rate and multiply by the number of weeks worked in a year.

• Capital gains and social security count as income when calculating your annual income.

What is annual income?

Annual income is the total amount of money you earn during a year. The definition of “year” can change. You can either go by a calendar year, which is January through December, or a fiscal year, which the federal government defines as October through September. Note that different companies have different fiscal years, which are set up for budgeting and financial purposes.

Pay attention to which one you’re being asked for when you’re providing your annual income, as it may impact your answer.

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The difference between gross and net income

The difference between gross and net income is that gross income is income before taxes and deductions while net income is income after taxes and deductions.

When you’re asked for your annual income, you’ll probably have to provide either your gross income or your net income, and sometimes both. It’s essential to understand the difference between gross and net income so that you can make sure you write the correct number for whatever a particular form is asking you for.

• Your gross income is all money you earn during the year before taxes or any other deductions are removed from that total. For example, if your employer pays you a base salary of $50,000 a year and withholds taxes from that amount, then $50,000 is your gross income.

  Gross income is usually what institutions are talking about when they ask for your annual income. For example, if a credit card application simply asks for your total annual income and doesn’t specify if you should provide the gross or the net, you will typically provide your gross annual income. Always feel free to call the company to clarify if you’re in doubt, though.

• Your net income is the amount of money you have after paying your taxes and making other deductions. So, if you technically make $50,000 annually but you only end up with $35,000 deposited in your bank account each year after your taxes are withheld, insurance premiums are deducted, and social security is taken out, your net income is $35,000.

You can see both your monthly or biweekly gross and net incomes on your paystub if you look closely. Even though these aren’t your annual income, they can give you a better idea of the difference between the two, and they can help you calculate your gross and net annual incomes.

How to calculate your annual income

To calculate your annual income, add together all of your income streams for the year.

If you are calculating your net annual income, subtract your taxes and other deductions after you do that. If you only know your hourly, daily, weekly, or monthly income, you can still easily calculate your annual income.

1. Multiply your hourly income by the number of hours you worked. If you work eight hours a day, five days a week, and 52 weeks per year, for example, you will have worked 2,000 hours per year. Multiply this by your hourly wages, and voila, you have your annual income.

2. Multiply your daily income by the number of days you worked. Going off of the same assumption that you worked five days a week and 50 weeks during the year, you can multiply your daily income by 260 to find your annual income.

3. Multiply your weekly income by how many weeks you worked. If you earned the same amount of weekly pay for each week of the year, you can simply multiply your weekly income by 52 to find your annual income.

   If there are some weeks where you didn’t work all five days, though, you will need to do some additional calculations.

   The first step is to find your hourly wage. To do this, just divide your weekly income by the number of hours you work in a full week. For example, if you’re a butcher who makes $800/week and works 40 hours each week, you’d start by dividing $800 by 40.

   The answer to this is $20. You can then multiply this number by the number of hours you worked during those shorter weeks. If there are two weeks of the year where you only worked 30 hours each week, for example, you would multiply $20 by 30 hours, which gets you $600.

   This means that you earned $600 for each of those two weeks or $1,200 total.

   Next, you add this to the rest of your annual income, which is $800 multiplied by 50 weeks, since you worked full weeks the rest of the year. So, your annual income from your job is $40,000 plus $1,200, which is $41,200.

4. Multiply your monthly income by 12. This is a relatively straightforward calculation since there are 12 months in a year. If your paycheck wasn’t the same each month, simply add all of your checks together. Just pay attention to whether you’re adding up your gross or net income from each month.

5. Add together your streams of income. Once you’ve calculated your annual income from your job, it’s time to add in any additional streams of income that you may have. Again, make sure you’re staying consistent and calculating only your gross or net annual income at one time as you do this.

Streams of revenue that count toward your annual income

Your annual income goes beyond the paycheck you get from your employer. Here are some additional sources of revenue that you can and should take into account when you’re calculating your annual income:

1. Employment income in addition to your salary. There are many professions where your paycheck doesn’t fully reflect the money you make while working. Keep track of your tips, overtime pay, and bonuses, and include them in your annual income.

2. Self-employment income. If you do contract work or have a side hustle where you make money on your own, you should count this money as a part of your annual income as well. Just make sure you know what your expenses are in addition to your taxes so that you can deduct them to calculate your net income.

3. Income from a business. If you make an income off of a business that you own or are a part of, you should include this in your calculations as well. Just remember that you should only include the money that you’re paid as a salary, not the amount your business as a whole brings in.

4. Rent you’re paid. If you own rental properties that you make money from, this also counts as income. Again, though, keep track of your expenses so that you can calculate your net earnings.

5. Income from investments. Your annual income should also reflect any interest you gain or money you make from investments. Savings accounts that pay you interest also fall under this category.

6. Capital gains. If you sell something like a car, house, or other product and make money off it, this amount is also added to your annual income. Make sure you determine the pre-tax number for your gross income calculations as well.

7. Social security or pensions. Any cash you receive from social security or a pension also counts as a source of income, so keep track of that amount as well.

8. Welfare, disability assistance, or unemployment. If you’re out of work and are receiving unemployment checks or getting money from the government to help you meet your needs because of a disability or other circumstance, this also counts toward your total annual income.

9. Alimony or child support. If a court orders three years or more of alimony or child support, any money you receive from that is considered a part of your annual income. However, if it isn’t court-ordered or is ordered for less than three years, it generally doesn’t count towards this.

Example gross and net annual income calculations

Once you figure out all of your different streams of income, you’ll need to add them together. Keep reading to see examples of how to do this for both your gross and net annual incomes.

1. Gross Annual Income Calculation Monthly Pay Example

   Say you earn $2,500 per month before taxes at your job as a delivery driver, and you got a $3,000 bonus (this hasn’t been taxed yet either). You also have a side business mowing lawns that earned you $6,000 during the year, not counting expenses or taxes.

   To calculate your gross annual income, you’d start by figuring out how much your salary was that year. To do this, you would multiply $2,500 by 12 months, which is $30,000. Then, you’d add on your $3,000 bonus, which would result in $33,000.

   Next, you’d add your income of $6,000 from mowing lawns to your $33,000, which adds up to $39,000. This is your gross annual income.

2. Net Annual Income Calculation Monthly Pay Example

   Now, say you have the same income as before, but that after taxes, you only take home $2,100 per month and $2,800 of your bonus.

   Your side business also required $500 in expenses and $300 in taxes, leaving you with $5,200.

   Doing the same calculations as above but with these new amounts, you find that you ended up with a net annual income of $25,200 from your day job ($2,100 times 12), plus the $2,800 bonus and the $5,200 from your lawn mowing business.

   Added together, you have a net annual income of $33,200.

3. Gross Annual Income Annual Salary Example

   Say you’re a social media manager whose salary was $42,000 for the first nine months of the year. Then you got a raise, so for the last three months, your salary was $45,000. You also got a $2,000 bonus (before taxes), and have a high-yield savings account that earned you $600 in interest.

   To find your gross annual income, you’d start by prorating your annual salaries by figuring out what you made each month. Starting with the $42,000, you’ll divide it by 12 months, which gives you $3,500 a month. Since you earned that for nine months, you’ll multiply that number by nine, which gives you $31,500.

   You’ll do the same for your $45,000 salary but for only three months. $45,000 divided by 12 is $3,750, and that multiplied by three months is $11,250 a month.

   Now, you add the $31,500 to the $11,250, which results in an annual salary of $42,750. Add your bonus and interest to that, and you get $45,350 in gross annual income.

4. Net Annual Income Annual Salary Example

   Let’s take the numbers from the previous example and calculate your hypothetical net annual income. So, you have $45,350 in gross annual income, and now you need to subtract your taxes, insurance premiums, and social security. Let’s say all of those deductions add up to $15,000 for the year.

   To find your net annual income, you’ll subtract the $15,000 from the $45,350, giving you $30,350. This is your net annual income.

What is annual household income?

Household income refers to the gross income of all household members aged 15 and up. The members of a household don’t need to all be related — all adults under one roof contribute to the household income.

Household income is used as an indicator of the standard and cost of living of a city or neighborhood. Mortgage lenders typically assess household income as a measure of your credibility.

Calculating your annual income if you’re 18-21 years old

If you’re between the ages of 18 and 21, you can usually count any money from your parents or guardians, as well as any scholarship stipends, as a part of your annual income.

Young people with a minimal financial history often find it difficult to get a credit card for the first time, especially if their annual income isn’t substantial.

To make this easier, most credit card companies will allow you to include any money your parents or guardians regularly deposit into your account for you to spend. They also count any scholarship money, such as a stipend that goes into your bank account, as a part of your annual income.

You cannot, however, count the money you’re receiving from student loans. These count as debt, not income.

Annual income FAQ

1. What is a good annual income?

A good annual income depends on how you define it and your cost of living. If you define annual income as gross income, then a higher amount is “better” because you need to have enough left over after taxes and deductions to cover your cost of living plus additional recreational expenses.

Apply the 50/30/20 rule to figure out if you are happy with your income. 50% of your income should go towards your needs. 30% should go towards your wants. 20% should go towards your savings.

2. What is $20 an hour annually?

$20 an hour is $41,600 a year if you work 40 hours a week for 52 weeks. If you take two weeks off in a year, then the annual income of $20 an hour comes to $40,000. However this is a gross income, that is, income before taxes and deductions.

3. What does median annual salary mean?

Median annual salary means the exact middle income amount found in a range of salaries. Median means midpoint, so a median annual salary is the midpoint of a list of salaries. The total amount of income on either side of the midpoint must be equal. Median annual salary provides a middle that is not affected by extremities on either end, as would be the case when calculating mean, or average, annual salaries.

4. Is annual income monthly or yearly?

   Annual income is your yearly income. “Annual” means “covering the period of a year,” so your annual income means the total amount of money you’ve earned in a single year.

5. What does annual income mean?

   Annual income means the amount of money you earn in one year. This includes money you’ve earned from your job, investments, a side hustle, or even unemployment or alimony checks. This also called your gross annual income.

Final thoughts

When it comes to annual income, there are a lot of nuances to keep in mind. Between salaried exempt employees and hourly non-exempt ones, bi-weekly or monthly pay periods, taxable vs. untaxable income, and other various elements that affect your take-home pay, there’s a lot to consider when you’re thinking about how much money you make and have available.

The important thing to remember is that your gross annual pay is the thing lenders (banks, credit card companies, etc.) are usually most interested in, while your net annual pay is more useful for personal budgeting and financing.

References

1. National Center for Education Statistics – Annual Earnings by Educational Attainment

Author

Abby McCain

Abby is a writer who is passionate about the power of story. Whether it’s communicating complicated topics in a clear way or helping readers connect with another person or place from the comfort of their couch. Abby attended Oral Roberts University in Tulsa, Oklahoma, where she earned a degree in writing with concentrations in journalism and business.