What is Annual Income? Explained with Example

Annual income is the amount of income you earn in one fiscal year. Your annual income includes everything from your yearly salary to bonuses, commissions, overtime, and tips earned.

You may hear it referred to in two different ways: gross annual income and net annual income. Gross annual income is your earnings before tax, while net annual income is the amount you’re left with after deductions. This topic is important if you’re a wage earner or a business owner, particularly when it comes to filing your taxes and applying for loans.

Annual Income

What is annual income?

Annual income is the total income that you earn over one year. Depending on the data that is required to determine your annual income, you may base your income on either a calendar year or a fiscal year. A calendar year is January 1st to December 31st of the same year. The U.S. Federal Government defines a fiscal year as starting on October 1st and ending on September 30th of the following year.

Individuals and businesses may calculate either calendar year or fiscal year income depending on the requirements and circumstances of the entity asking for the annual income information. The majority of annual income calculations rely on the fiscal year calculation.

What Does Annual Income Include?

Annual income includes:

  • Wages, salary, overtime pay, commissions, and tips or bonuses before deductions
  • Any social security, retirement funds, or pensions
  • Welfare or disability assistance
  • Court-ordered alimony or child support payments
  • Net income from operating a business or a second job
  • Interest, dividends, and any other net income from properties

Net Annual Income

Net annual income is your annual income after taxes and deductions. This is what you’d use to make a budget, since it’s what you have available for essentials or living expenses, such as housing, utilities, food, or transportation.

In business, net income is referred to as profit, the money a company has left after they’ve paid all operating costs.

Household Income

Household income is the total gross income of all members in a household. It includes any person 15 years or older, and individuals don’t need to be related to makeup your household income. It’s typically used as an indicator of an area or city’s standard of living. Lenders assess risks and base how much they will lend you on your household income.

What is Annual Income

What is Gross Annual Income?

Personal gross annual income is the amount on your paycheck before taxes and deductions. When you accept a job offer, this is what’s listed on your offer letter or contract.

When preparing and filing your income tax return, gross annual income is the base number you should start with. If you know your gross income, you’ll have a better idea of what taxes you will either owe or be returned. Your gross annual income is also the number that’s used to qualify you for a loan or a credit card.  

Gross business income is listed on your business tax return. Gross income in business is calculated as the total company sales minus the cost of goods sold. This number is what investors look at when assessing a potential company.

Hourly, Daily, Weekly, Monthly Income Conversion

You can easily convert your hourly, daily, weekly, or monthly income to an annual figure by using some simple formulas shown below.

To convert to annual income:

  • Hourly: Multiply by 2,000
  • Daily: Multiply by 200
  • Weekly: Multiply by 50
  • Monthly: Multiply by 12

Below, we will show an example of how to move between the time periods.

Example of Annual Income Calculator

Let’s work through how to calculate the yearly figure by using a simple example. Assume that Sally earns $25.00 per hour at her job. What would her annual income be if she works 8 hours per day, 5 days per week, and 50 weeks per year?

Solution:

Hourly: Multiply $25 per hour by 2,000 working hours in a year (8 hours x 5 days per week x 50 weeks per year).

Daily: Multiply the $200 per day by 250 working days in a year (5 days per week x 50 weeks per year).

Weekly: Multiply the $1,000 per week by 50 working weeks per year.

Monthly: Multiply the $4,167 per month by 12 months per year.

How do I calculate my gross income?

An individual’s gross income is the total amount earned before taxes or other deductions. Usually, an employee’s paycheck will state the gross pay as well as the take-home pay. If applicable, you’ll also need to add other sources of income that you have generated—gross, not net.

What is the difference between gross income and net income?

Net income is the money that you effectively receive from your endeavors—the take-home pay for individuals. For companies, it is the revenues that are left after all expenses have been deducted.

How do you calculate gross business income?

The gross income of a company is calculated as gross revenue minus the cost of goods sold (COGS). So, if a company registered $500,000 in product sales and the cost to produce those products was $100,000, then its gross income would be $400,000.

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