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. Gross IncomeYour 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. Net IncomeYour 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 IncomeYou 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:
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 taxesThe 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:
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. Key TakeawaysSo 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. |