Your annual wages or salary is the amount your employer pays you for the year. While salary is an expressed amount of pay you receive for a certain time frame, such as weekly, biweekly, semi-monthly, monthly or yearly, your hourly wages are determined by the amount of hours you work for the pay period. Consequently, figuring out your hourly wages for the year can take more time than calculating salaried income, particularly if your work hours fluctuate.
Figure out your total work hours for the year. This is easy if you work a standard 40-hour workweek. For example, 40 x 52 weeks = 2,080. If not, ask your employer for copies of your time card records and add up the time yourself, or for a printout of your work hours for the year.
Multiply your total regular work hours for the year by your regular pay rate and factor in overtime, if applicable. Calculate overtime hours (in most cases, work hours exceeding 40 for the week) at 1.5 times your regular pay rate.
Add up your regular and overtime wages to arrive at your total gross pay for the year.
Figure out annual salary (if applicable) by multiplying the amount you receive each pay period by the number of pay periods in the year, such as 52 weekly pay periods or 26 biweekly pay periods to arrive at your gross salary for the year. This method works best if you work 40 hours each week, 2,080 hours per year. Another way is to multiply your hourly salary by the number of hours you work each week then multiply the total by the number of weeks you work during the year.
Subtract paycheck deductions. This includes federal income tax, Social Security tax and Medicare tax, other applicable mandatory deductions such as state income tax, local income tax and wage garnishment and voluntary deductions such as health insurance and retirement contributions. What’s left over is your take-home wages or salary for the year.
If you do not know your tax withholding for the year, use IRS Circular E to figure out federal income tax, Social Security tax and Medicare tax. For example, in 2011, calculate Social Security tax at 4.2 percent of your gross income up to $106,800 for the year and Medicare tax at 1.45 percent of all your gross income. Apply the Circular E’s federal tax withholding table that matches your wages or salary, pay period and the filing status and allowances shown on your W-4 form. If state and local income taxes apply, use your state revenue agency’s withholding procedures.
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