Annual Income: What It Is and How to Calculate Your Income

If you have a job, you make a certain amount of money each year, which ultimately totals up to be your annual income. If you’re unsure of how much income you bring home each year, there are several easy-to-use calculations that make it simple. There are a few different types of income, and being familiar with each will ensure your calculations are as accurate as possible. Here we explore what annual income is, the different types of income, how to calculate your yearly income in different scenarios, and examples you can use when calculating your own income.

Annual income is the total amount of money you make each year before deductions are taken out of your pay. For example, if you’re paid a £30,000 yearly salary, this is your annual income, even though you don’t actually take home £30,000 after deductions. This type of income is typically calculated by totaling how much a person makes from the first day of January of one year to the last day of December in the same year.

There are two types of income that can fall under the yearly income umbrella. These types include:

• Net income: This is your total yearly income after deductions and taxes are made. For example, if you make £2,500 every two weeks and £500 is taken out for taxes and other deductions, your net income would be £2,000 every two weeks.

Gross income: This type of income refers to your yearly earnings before deductions and taxes are made. Using the same example as mentioned above, £2,500 would be your gross income every two weeks, as this is how much you make before deductions.

There are several types of income that are considered annual income. The most common types include:

• Employment wages and salary: There are a few different types of income you can bring in from an employer, including hourly wages and salary. Usually, a person will be either an hourly employee or a salaried employee. However, if you work two jobs — for example, you work a salaried job during the day and an hourly position on weekends — you’d include both types of earnings when calculating your yearly income.
• Commissions, overtime pay, and bonuses: These payments also come from an employer and are considered part of your yearly income. For example, if you get a £5,000 annual bonus from your employer, you would include this when calculating your yearly income.
• Self-employment income: If you do any freelance work or have your own business, any earnings you make from these endeavors are also considered part of your yearly income. Types of self-employment income include commissions from sales, contract jobs, and personally-owned business earnings.
• Capital gains: If you sell a home, car, or another asset during the year that you’re calculating your annual income for, you’d include this in your calculations. Capital gains refer to the profit you make from a sale before taxes are taken out.
• Pensions: If you receive a pension from your previous employment, this is also considered part of your annual income.
• Child support and alimony: If you receive child support or maintenance from a spouse or previous spouse, this is also considered part of your yearly income.
• Disability and welfare: If you receive disability and/or welfare assistance from the government, this will need to be included when calculating your total annual income.
• Income and interest from investments: Any income or interest you make from investments, such as stocks and bonds, are considered part of your yearly income.

Income from rental properties: If you own property and rent it out to a tenant, the rental income you make should be included in your yearly income.

The following are steps you can take to calculate your yearly income if you’re a salaried employee:

1. Create a list of all of your income sources. This includes any income that’s in addition to your employment salary.
2. Determine your gross pay. For example, if you’re paid £2,000 every two weeks, you’d multiply by 26 (if your company pays you based on a 52-week year). So, your gross pay would equal £52,000 (26 x 2,000). This is how much you make on an annual basis before taxes are taken out.
3. Add any other income sources to your gross pay. For example, if you make £1,000 selling homemade crafts, you’d add this to your gross pay to get £53,000. This is your annual income.

Related: How to Negotiate Your Salary

Here are the steps you can use to calculate your yearly income if you’re an hourly employee:

1. Create a list of all of your income sources. These include additional wages you make outside of your hourly pay from your employer.
2. Determine your hourly gross pay. For example, if you make £10 an hour and work 40 hours each week, this means you make £400 on a weekly basis. Multiply this by 52 to get your gross pay. So, using this example, your gross annual pay would be £20,800 (52 x 400).

Combine your gross pay with any additional income. For example, if you earn an additional £5,000 from an annual bonus, you’d add this to your gross pay to get £25,800. This is your yearly income.

The following is an example of calculating yearly income for a salaried employee:

Sarah makes £2,500 every two weeks at her job and also earns an additional £10,000 each year doing freelance writing. Sarah’s yearly income from her position is £65,000 (2,500 x 26), so her total annual income is £75,000 (65,000 + 10,000.)

Here is an example of the yearly income for an hourly employee:

Susan makes £15 an hour at her job and works 40 hours each week. She also gets £20,000 in child maintenance each year. Susan’s total income from her job is £31,200 (15 x 40 = 600, 600 x 52 = 31,200), and her total income with the child maintenance is £51,200 (31,200 + 20,000).