Last Updated: March 21, 2022
Have you ever wondered, what is total annual income? Why is it important? Whether you are applying for a credit card, an apartment, or a loan, you will need to know your total yearly income; it’s the amount of money you earn over the course of a year.
In this article, we’ll look at what exactly it is, how to compute it, and cover any other questions you might have about it.
What Is Total Annual Income?
The phrase “annual income” refers to the total of money earned over the course of a year. It is important to remember that this is the whole amount of money you earn before any adjustments. The same applies, no matter whether you are employed or self-employed.
You can calculate your annual income by choosing either a standard calendar year (January to December) or a fiscal year (October 1st to September 30th). Most owners of businesses and independent contractors evaluate their earnings for the fiscal year in which they operate.
|DID YOU KNOW: The median household income in the US was $67,521 in 2020.|
Wages vs. Salary: What’s the Difference?
Now let’s see how to calculate annual income. If someone is paid a salary, they are getting a set amount of money over a set period of time. The quantity of money a person earns has nothing to do with the number of hours that they worked. For example, when you earn $130,000 a year and are paid on a weekly basis, regardless of how many hours you work, you will be paid $2,500 per week ($130,000 divided by 52 weeks).
Wages, however, are calculated based on how many hours an individual has worked. So, if a worker is paid $45 per hour, they will have earned $1,800 in total by the end of a 40-hour week (the amount multiplied by the number of hours worked).
However, if the same person works part-time – perhaps only 20 hours per week, at the end of the week, he or she will have earned a total of $900. This is very helpful if you need to work out what is your total annual income for credit card applications, for example.
|DID YOU KNOW: According to the US Bureau of Labor Statistics, the average hourly wage of United States citizens as of December 2020 is $29.81, while the average weekly wage is $1,034.41.|
How to Calculate Total Annual Income?
Making an assessment of your annual earnings might be time-consuming. However, there are several simple steps you can take to figure it out.
Make a list of all of your revenue streams.
Calculate your annual earnings by adding up all of the different revenue streams you have collected over the course of a year. There are no more calculations to be done.
Make the following calculations to determine your monthly take-home pay: If you tallied all of your earnings for the year and split that sum by 12 (the number of months in a year), you’ll figure out your monthly income.
To figure out your hourly wage and find out what’s your annual income, do the following:
- Wait until you have received at least one payment.
- Divide the amount you received in your first payment by the number of hours you have worked so far to arrive at your hourly wage.
- Now add it all up to get your annual, monthly, and hourly earnings.
A simple formula can also be used to calculate your annual income:
12 x the monthly rate
50 x the weekly rate
250 x the daily rate
2,000 x the hourly rate
You see, working out how to calculate annual income is simple!
|Whether you are applying for a credit card, an apartment, or a loan, you will need to know what your total annual income is.|
|Your total yearly income is the amount of money you earn over the course of a year and is used as a yardstick in many financial situations.|
|Calculate your annual earnings by adding up all of the different revenue streams you have collected over the course of a year.|
|When someone is paid a salary, they are getting a set amount of money over a set period of time.|
|Wages are calculated based on how many hours an individual has worked.|
|You can calculate your annual income for a calendar year or a fiscal year, depending on what you need it for.|
What Is Included in Annual Income?
Almost all of your sources of income are combined to make up your overall total gross annual income. A part-time job and a salaried job with weekly paychecks are both considered when calculating your annual income, as well as things like overtime, bonuses, and commissions.
If you earn interest on the money in your bank accounts, that interest will be added to your earnings. Your overall annual income will include all of the earnings from your stock market assets.
Total Annual Income vs. Net Income vs. Gross Income
Although total gross annual income and net income are basic concepts, their definitions may vary depending on the situation.
When it comes to your personal finances, a business’s finances, and even your taxes, you will hear the terms gross and net income a lot. It is vital to grasp the difference between gross and net income in each case.
In most cases, gross income is the bigger amount because it is the total income before deductions. The smaller amount is usually the net income, which is what is left after all deductions and withholdings have been taken out.
The term “gross annual income” refers to the total amount of money earned by an individual over the course of a calendar year before taxes and deductions. This number can be used to establish whether or not you qualify for a credit card or a loan, in addition to assisting you with your tax returns. You may figure out your gross annual pay by looking at your contract of employment. Again, you will need to look at similar figures when it comes to figuring out what is the total annual income for self-employed workers.
You’ll see references to gross and net income on your paycheck. Your gross income, also known as gross pay, is the total amount you are paid before deductions and withholding – find out more about what is adjusted gross income. If you are not paid an annual salary, multiply the number of hours you worked by your hourly pay rate to get your gross compensation for a cheque. By aggregating all of your gross pay for the year, you’ll compute your annual gross income.
By subtracting any deductions and withholdings from your gross salary and any welfare payments, you’ll get your net income. The amount of money you make after taxes is your net income, often known as net pay or take-home pay. Knowing this difference is crucial if you want to know how to calculate total annual income or your yearly income.
Deductions and withholdings of various kinds are made from your gross income. Here are some of the most typical deductions and withholdings:
- Premiums for health insurance, including dental and vision coverage
- Contributions to a 401(k) plan
- Contributions to a health savings account
- Contributions to a flexible savings account
- Payments made to a union
- Taxes on Social Security
- Taxes on Medicare
- Income taxes paid to the federal government
- Income taxes levied by the state, the city, and the municipality
There is more information about pre-tax vs post-tax deductions here.
|DID YOU KNOW: For those earning more than $200,000, the state and local tax deduction is the single largest deduction. In 2014, $243 billion was deducted from these families in state and local taxes, accounting for 47% of all state and local taxes deducted from American households.|
Why Is It Vital to Know Your Annual Income?
Your annual income is the most crucial indicator of your financial health. This is why evaluating your annual income and knowing what does annual income mean is crucial. Not only will knowing your income help you create a budget, but it will also show banks and lenders that you are capable of repaying loans and mortgages.
You will need to know your annual income if you are paying alimony or child support, too. Of course, knowing your annual income can help you file your taxes and tax return documents. If you’re still unclear about how much taxes you need to pay, it may be a good idea to get a free tax consultation.
So, what is total annual income and why is it important? We hope that after reading this article, you know all of the key points. It is really simple – you simply need a list of your income streams, your paychecks, and a calculator, and with a few simple calculations, you will have the figure that you need.