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Figuring Out How Much You Make and How Much You Keep
Annual income refers to the money you make in one calendar year from salary, interest income and other sources. Knowing what you make and what’s available to you after paying taxes are essential for budget-planning for you and your family.
What Is Gross Annual Income?
Gross income is the amount you take in before any taxes or deductions are taken out. For example, your job pays $12 per hour. If you work 40 hours per week, that amounts to a gross weekly income of $480. Multiply that figure by 50, which is the typical number of weeks worked in a year, and you have a gross annual income of $24,000. That’s not the amount of money you will take home, however. Your employer is required by law to deduct a certain percentage for the Federal Insurance Contributions Act, or FICA, which pays into Social Security and Medicare. There are other federal tax deductions, and, depending on where you live, deductions for state taxes. Additional deductions might be made for uniforms, employer-provided health insurance or a retirement plan. In some cases, child support may also deducted directly from gross pay.
Other Sources of Income
When calculating gross annual income, you must include all sources of income. Alimony is considered taxable income and must be reported when you file your taxes. Former spouses who pay alimony can deduct payments from their taxes. Child support is not taxable, so individuals receiving it do not include it as income for filing purposes, nor can the person paying it deduct it as an expense.
Other sources of income you may receive include social security benefits such as monthly retirement, survivors and disability benefits, which are taxable and must be reported as gross income. Supplemental security income (SSI) is not taxable. You must report it, but it will not be calculated as part of your gross annual income.
When calculating gross income, include pay (before deductions) from any part-time or additional jobs you have. Other items to include in calculating gross income can include pension allotments, rental payments you receive, interest from your bank account and dividend payments from any investments.
Annual Household Income
Annual household income is the amount of money taken in by all members of the household combined from any of the listed sources listed. “Gross annual household income” is the amount before any deductions are taken.
Reporting Income to the Federal Government
You report your income to the federal government when you file taxes each year. Failure to report is a crime, as is deliberately withholding information about any source of income. By January 31st of each year, employers must provide each employee with a copy of a W-2 form, which shows the gross wages paid during the previous calendar year along with totals of all the deductions taken.
When you file taxes, you report your gross annual income; then subtract the amount of taxes you have already paid. In addition to the standard deductions for each of the members of your household, you may also be able to deduct childcare expenses, medical expenses, mileage related to your job, home office expenses and other expenses related to producing income. It’s best to make an appointment with a tax professional if you have income from multiple sources or have a number of deductions.
You must also file a tax return with your state. Currently, seven states impose a state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Neither New Hampshire nor Tennessee tax wages, but they do tax income from dividends and investments.
Net Income and Tax Refunds
After all the deductions are taken from your gross annual income, net annual income is left. It’s the amount of money that you actually have to spend on needs and wants and, hopefully, put into savings too. Depending on your earnings, the amount of taxes paid in during the year and the total deductions you have, it may be that you have money coming back from the Internal Revenue Service (IRS) and/or your state government.
If you paid too little in taxes throughout the year, you will owe money to the IRS. You can call them to work out a payment plan if the amount owed is more than you can afford to pay all at once. If you owe money in taxes, it’s good idea to ask your employer to withhold more for taxes from each paycheck going forward. That way, you might not owe any taxes after filing the next time, and you may even get a refund.
Denise Dayton is a a freelance writer who specializes in business, education and technology. She has written for eHow.com, Library Journal, The Searcher, Bureau of Education and Research, and corporate clients.