What Is Annual Income?
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Annual income refers to the amount of money you make in one year before any taxes or deductions are taken out.
Your annual income can include earnings from various sources, including regular employment, side hustles, Social Security, and dividends and interest from investments. Annual income is a key factor in determining your financial health, often used by lenders, credit card companies and other financial institutions to evaluate, in conjunction with your credit score, whether you qualify for loans, credit cards and other financial products.
Annual income vs. gross income vs. net income
Annual income is sometimes used interchangeably with gross income, which also refers to all your earnings before deductions or taxes.
In contrast, net income is money you receive after federal, state and local taxes and other payroll deductions are withheld. It is also known as your take-home pay.
How to calculate annual income
To calculate your annual income, add up all of your sources of income for the year. This includes your salary, wages, tips, bonuses and any other income you receive.
If you receive a regular paycheck, you can calculate your annual income by multiplying your gross pay (before taxes and deductions) by the number of pay periods in a year. For example, if you are paid biweekly and your gross pay is $2,000 per paycheck, your annual income would be $52,000 ($2,000 x 26 pay periods).
If you have multiple sources of income, you will need to add up all of your income to calculate your annual income. For example, if you have a part-time job that pays $10,000 per year and a rental property that generates $15,000 per year in income, your annual income would be $25,000 ($10,000 + $15,000).
Why knowing your annual income matters
If you are applying for a loan or credit card, the lender will use your annual income (and other factors, such as credit score) to determine whether you qualify for the product and how much you can borrow. If you are looking to rent an apartment or buy a home, your annual income will be used to determine whether you can afford the monthly payments.
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