What Is An Annual Income? (With Examples)

By Chris Kolmar - Dec. 22, 2020

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Whether you’re applying for a credit card or paying your taxes, you’re often going to need to provide your annual income to complete these processes.

If your job doesn’t give you an annual salary, or if you know you have money coming in from multiple sources, this can be a daunting question to answer. However, finding that answer is easier than you might think.

Defining 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.

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

The Difference Between Gross and Net Income

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.

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.

On the other hand, 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, 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.

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.

This can get tricky if, for example, a credit card application simply asks for your total annual income and doesn’t specify if you should provide the gross or the net. In this situation, you will typically provide your gross annual income, but always feel free to call the company if you’re in doubt.

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How To Calculate Your Annual Income

If you only know your hourly, daily, weekly, or monthly income, you can still use this to calculate your annual income easily. Just make sure you’re paying attention to whether you’re calculating your gross or net income while you’re doing so.

  1. Multiply your hourly income by the number of hours you worked. If you work eight hours a day, five days a week, and 50 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 250 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 $200 and works 40 hours each week, you’d start by dividing $200 by 40.

    The answer to this is $5. 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 $5 by 30 hours, which gets you $150.

    This means that you earned $150 for each of those two weeks, or $300 total.

    Next, you add this to the rest of your annual income, which is $200 multiplied by 50 weeks, since you worked full weeks the rest of the year. So, your annual income from your job is $10,000 plus $300, which is $10,300.

  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.

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.

Calculating Your Annual Income if You’re 18-21 Years Old

If you’re between the ages of 18 and 21, you might find it difficult to get a credit card for the first time, especially if your 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.

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.

Gross Annual Income Calculation

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 to $39,000. This is your gross annual income.

Net Annual Income Calculation

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.

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Chris Kolmar

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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