Last Updated: May 3, 2022
Understanding total annual income is essential if you’re navigating your way from one job to another. More than this, there are plenty of reasons you’d need to know your total annual income, whether it’s for a loan application, tax filing, or child support request.
So, what is a total annual income?
In layman’s terms, annual income means the amount of money earned throughout the fiscal year. Yet, you will see two figures in your personal financial statement: gross and net annual income. Let’s look at each one and explain the difference.
Your total gross annual income is decided as your salary or wage when you are offered a new job. Many wrongly believe that this is the figure they will take home. In reality, this is the amount listed before your tax and deductions.
When filing your taxes, you’ll be asked for this figure first, as it’s the basic calculation for your tax payment or tax refund. Also, if you’re ever applying for a mortgage, credit card, or a loan, you need this figure for the bank to decide whether you have enough to pay it back. And for business owners, this is the figure that shows the company’s revenue before staff and bills deductions.
Your net income is what you get after your tax, pension, deductions, and salary packaging. This is the net pay, and it’s considered the more valuable figure because it’s what you actually get in your pocket. It’s what you have to pay for your rent, your food, your bills, and anything else that you have to pay for when it comes down to it. You might want to consider covering your income tax liabilities, too, because if the deductions on the check don’t cover it, and you might end up owing the government.
How To Calculate Your Annual Income
You can calculate your yearly gross income using a total annual net income calculator. You can find plenty of such tools online. But if you prefer the old-school DIY method, here’s the formula for converting your hourly, daily, weekly, or monthly income to an annual figure.
To convert to yearly income depending on the way you get paid:
- Multiply your hourly wage by the number of hours you’ve worked. If you work full-time (8 hours a day, 5 days a week, 52 weeks per year), you’ll have worked a total of 2,080 hours at the end of the year.
- Multiply your daily income by the number of days you’ve worked. Going off of the example above, you can multiply your daily income by 260 to find your annual income.
- Simply multiply your weekly income by 52 if you earn the same amount of weekly pay for each week of the year.
- Multiply your monthly income by 12 if your paycheck was the same each month of the year. Otherwise, simply add all of your checks together.
Bear in mind any unpaid vacation, though. In the US, all 52 weeks of the year are working weeks. Most employers, however, offer a minimum of two weeks for paid holidays. Yet, statistics show the average American works 48 weeks per year, meaning that many take extra time off.
And are there any other income sources than the one from your main job? If so, what is your total annual income?
Your yearly income has to factor in all income sources. These include any savings you might have, property, or services received.
Calculating annual income after taxes
The formula above would only give you your yearly gross income. From there, you can figure out your deductions. For this purpose, you should be familiar with the US tax system.
More specifically, if you know what your Medicare and Social Security taxes are, as well as your Federal and State Income taxes, you can then deduct that figure from the total gross annual income. They are not the same for everyone and depend on a number of factors, confusing almost half of US taxpayers. So here is a brief rundown:
- Federal Tax is a progressive tax, with higher rates applied to higher income levels. There are seven federal tax brackets for the 2021 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- State Tax could be either flat or progressive, depending on the jurisdiction. Flat rates range from 3.07% to 5%, while progressive withholdings top out around 13%-14%. And there are even states like Alaska with 0% income tax.
- Social Security Tax applies only on the first $142,800 that you earn. The current rate for employees is 6.2%.
- Medicare Tax has two tax brackets, 1.45% for the first $200,000 earned and 0.9% for the remaining.
Overall, calculating your total annual income is much easier when you know your wage and applicable deductions. You can discuss these figures with your accountant. They will help you figure out what amount of cash you can use and which expenses you can deduct from your annual pre-tax income.
So there you have it! Now you know the answer to the question “what is a total annual income?”.
These are the key tips that you need to figure out your total annual income before or after taxes. Knowing the annual income meaning will help you manage your money and expenses, file your taxes and apply for credit lines. In a nutshell, this is a must-have knowledge, and we’re glad you now have it.
Annual income is the total amount earned during a fiscal year. You can convert monthly salary to annual by multiplying your monthly payment by the 12 months of the fiscal year.
You may hear annual income referred to in two different ways: gross and net. Your annual income before taxes is gross, and the amount you are left with after deductions is your net pay.
Your gross annual income includes taxes. On a credit application, you’ll use the gross amount. Landlords also use this figure to determine whether you are a trustworthy renter. The yearly pre-tax income is also your starting point when filing federal and state income taxes, applying for employment benefits, or child support.