Annual Income Calculator
Use our annual income calculator to calculate your yearly income given your hourly wage.
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How to Calculate Annual Income
In the world of employee compensation, there are different terms used interchangeably, but what “annual income,” “salary,” “wage,” or “take-home pay” means to one person might be different than what they mean to another.
It’s not surprising that these terms are often easily confused.
In this guide, the term “annual income” will be used as shorthand for net annual income. In other words, this phrase represents the amount of money you keep from your pay.
This figure can be useful in many different situations, from job hunting, negotiating, budgeting, and everything in between.
Let’s take a closer look at the nuances involved in these phrases, as well as how to calculate your net annual income.
What Does Annual Income Mean?
When people refer to their annual income, they are referring to the amount of money they take home every year. They do not include the money they earned that was used to pay taxes.
This is different from your gross yearly income, which is a term that is often used interchangeably with your annual salary.
Gross Yearly Income vs. Net Income
While your net income–the total amount of money you get to keep, take home, and spend on whatever you want–does not account for taxes, your gross yearly income will.
Your gross yearly income will always be higher than your net income.
Unfortunately for many job seekers, the way these phrases are used can be ambiguous. Most employers will quote the gross yearly income for any job they are listing because, as the higher of the two figures, it makes a job offer more appealing.
Employers don’t know your personal financial situation (e.g., Do you claim any dependents? Do you have any other sources of income?), so it would be impossible for them to quote your net income with any degree of certainty.
However, because phrases like “take-home pay” and “weekly paycheck” can be used ambiguously, it is important to confirm what the numbers actually mean.
Steps to Calculate Annual Income
If you are paid an hourly wage, calculating your annual income should be fairly easy. In order to calculate your annual income, you will first need to identify the following variables:
- Your hourly wage. If your hourly wage varies (such as working overtime) or if your wage has changed over the course of the year, you will need to determine your average hourly wage.
- The average number of hours you work per week. Not every week will be the same (some weeks you might work 40, others you might work 0), so you’ll want to look at the average number of hours you worked every week. If you know the number of hours you worked throughout the year, this calculation will be even easier.
- The number of weeks in a year (52).
- The total amount of money you paid in taxes. This part can be confusing; tax rates vary by state, city, and income level.
If you are unsure how much you pay in taxes each year, you should check your tax return or consider speaking with an accountant. But once you have all of these numbers in hand, you can simply use the formula below.
Annual Income Formula
If you know your hourly wage and the number of hours you work per week, use the following formula to calculate annual income:
annual income = (hourly wage × hours per week × 52) – taxes
Or, if you know the total number of hours you worked over the course of the year, you can instead use the simplified formula below:
annual income = (hourly wage × total hours worked) – taxes
The formula for those that earn a fixed salary is even easier:
annual income = salary – taxes
For example, let’s suppose you currently make $18 per hour and, over the course of the year, you worked an average of 35 hours per week. While your typical work week was 40 hours, you took some time off and, as a result, your average slightly decreased.
At this point, you already know how to calculate your salary, or gross annual income:
gross annual income = ($18 × 35 hours × 52 weeks)
gross annual income = $32,760
This represents how much you made. However, we have not yet accounted for taxes. Suppose your average federal tax rate is 10% (this is not an actual estimate for how much someone making this income would pay).
If you multiply the gross annual income by the 10% tax rate, you would pay $3,276 in taxes.
The net annual income would be:
net annual income = gross income – taxes
net annual income = $32,760 – $3,276
net annual income = $29,484
The net annual income (sometimes called your annual income) is the money you earn that you can spend or save however you want.
Let’s look at another simplified example.
Suppose you already know that you worked 2,000 hours over the course of the year, your average hourly wage was $25, and your final tax bill was $8,000 (this number is completely hypothetical).
You can use the following formula to calculate the net annual income:
net annual income = ($25 per hour × 2,000 hours) – $8,000 in taxes
net annual income = $50,000 – $8,000
net annual income = $42,000
Do Vacation Days and PTO Affect Yearly Salary?
If you are a salaried employee, any paid vacation days and personal time off (PTO) you may have are usually built into your yearly salary, and you won’t have to adjust your calculations to account for them.
If you did take any time off without pay, you would need to adjust the calculations to account for that.
For hourly wage employees, the calculation might be a little more complex. Some hourly waged jobs offer their employees paid vacation days, meaning there isn’t a need to make any adjustments.
But if you do not receive paid vacation days, you will need to adjust the calculations to account for any days you took off without pay. This is why we use the average hours worked per week figure, which can be slightly lower than the typical hours worked per week alternative.
What About Other Job Benefits?
Other benefits might also be included in your compensation package. These benefits can include health and life insurance, access to a company car, retirement contributions, and more.
Whether you want to incorporate these benefits into your broader calculation remains up to you. Some benefits are fairly straightforward to assign a numeric value to (for example, how much would you pay to buy your own health insurance?).
Others are harder to quantify. If the benefits of one job offer are significantly different than another, it might be worth your time to assign a numeric value.
The degree to which you categorize and scrutinize your total compensation package will be entirely up to you and the best approach will vary by situation.
But in any case, knowing how to calculate your net annual income will be useful for comparing different job offers and creating an annual and monthly budget.