Whether you’ve applied for a credit card, an apartment, or a loan, there’s one number that’s important to know: your total annual income. Your total annual income is how much you earn in a year and is used as a benchmark in many financial situations.
For example, a credit card company may use your salary to decide what you can afford in order to determine your credit line. But if you don’t have your tax return handy or you’ve switched jobs or you just plain don’t know, how do you calculate it?
Read on to learn what is total annual income and how you can calculate it yourself.
What is Total Annual Income?
Your total annual income is how much income you earn each year from your job. In some cases, it may also refer to any payments you may receive as well, such as alimony payments, Social Security benefits, child support, and more. This is often referred to as unearned income.
Both “earned income” you make from your place of employment as well as “unearned income” from benefit payments and such are included in your Adjusted Gross Income (AGI) for your taxes. How to Calculate Your Total Annual Income
If you’re a salaried employee, total annual income would mean your annual salary. So let’s say you accepted a job offer and your manager says the position has a salary of $55,000. That would be your total annual income.
If you work hourly, you’d take the hourly rate you make and multiply it by the amount of hours you work per week. Then, you’d multiply that number by 52 for the amount of weeks in a year. For example, if you make $15 per hour at 30 hours per week that is $450 you earn each week. Multiply that by 52 weeks in a year and your total annual income is $23,400.
Difference Between Total Annual Income, Gross Annual Income, and Net Annual Income
When you see the term “total annual income” it refers to the amount earned within a year or if it’s at a business, during the fiscal year. On the other hand, if you see the term “total gross income”, that refers to all earnings before taxes and deductions are taken out.
You might also see the term “net income”, which is the amount of income you earn after taking all out taxes and deductions. That is typically how much you’re taking home each month really, and it’s a good number to know when crafting a budget.
So even though these terms are similar, they’re not the same. They may be used during tax time or on finance applications and serve different purposes.
How to Calculate Your Total Gross Annual Income
When it comes to total gross annual income, you’d take your hourly rate and multiply it by the hours you work per week and multiply it by 52. Total annual income and total gross income are sometimes used interchangeably.
If you’re salaried, you can take the amount you receive each paycheck and then multiply it by how many checks you receive each year. You can also use a total annual income calculator online to make it even easier.
How to Calculate Your Net Annual Income
Your net income is what is left after taxes and deductions are taken out. According to Indeed.com, here are some common things taken out of your paycheck:
To calculate, you’d take your gross income calculation. Other payments mentioned above like benefits, freelance work, and others would also be included. Then you’d subtract the total amount that is taken out each month.
Once you’ve taken your gross income and subtracted all taxes and deductions, you’ll have your net income. You can also check out the total annual income calculator but for net income.
Bottom Line
If you’re filling out financial paperwork or looking for a loan, you’ll likely see “total annual income” somewhere along the way. Typically this refers to gross income, which is what you make before everything is taken out. But some places might include additional earnings, while some might want net income.
It can be confusing, but knowing the difference can help you navigate the different terms with ease.
