What is gross annual income? Meaning, and how to work it out

What gross annual income means

It is gross income stretched over a year. Cambridge Dictionary defines gross income as the total amount a person earns in a period before tax is paid on it. Annual just says the period is 12 months.

Nothing has come out yet: no federal income tax, no Social Security or Medicare, no health insurance and no retirement saving. If your offer says $65,000, that is your gross annual income.

How to work it out

Salaried: it is the salary. If you only know a paycheck, multiply it by the number of paychecks in a year: 26 if you are paid every two weeks, 24 if twice a month, 12 if monthly, 52 if weekly (the IRS counts the same pay periods in its withholding tables).

Hourly: multiply the rate by the hours you work in a week, then by 52. Add anything else that is regular, like tips or a bonus you can count on. If your hours change, use last year's total on your pay stub or W-2.

When it is asked for

Lenders, landlords and some applications ask for gross annual income because it is a fair, before-tax measure that is the same for everyone. It is not the money you live on. Two people with the same gross annual income can take home different amounts, depending on where they live, what they put in a 401(k) and how they file.

For a couple applying together, each person's gross is usually added up. When you plan your own budget, use net income instead, which is what is left to spend.

A worked example: from an hourly wage to a year

• Hourly wage: $31.25. Hours: 40 a week.
• Weekly gross: $31.25 x 40 = $1,250.
• Gross annual income: $1,250 x 52 = $65,000.
• Per biweekly paycheck: $65,000 / 26 = $2,500.
• Take-home per paycheck, single, before state tax: about $2,093 (our paycheck calculator).
• Take-home for the year: $2,093 x 26 = $54,418.