From a pay cheque to a yearly figure
Mortgage applications, rental agreements, credit limits and tax forms all ask for annual income. Most people know what arrives each month or each fortnight instead. This calculator does the conversion, and the section below explains why the two figures people give are rarely the same.
The formula
| Paid | Periods per year |
|---|---|
| Monthly | 12 |
| Semi-monthly (1st and 15th) | 24 |
| Bi-weekly (every two weeks) | 26 |
| Weekly | 52 |
Worked example: $5,000 a month
$5,000 × 12 = $60,000 a year.
Now the trap. Someone paid $2,500 every two weeks might assume that is also $60,000, since it looks like twice a month. It is not: 26 periods × $2,500 = $65,000. Bi-weekly pay produces two extra cheques a year compared with semi-monthly, a difference of $5,000 on this salary.
Gross or net, and why forms mean gross
On $60,000 gross, take-home in the United States lands somewhere near $47,000 after federal tax, Social Security and Medicare, before any state tax.
Lenders and landlords ask for gross because it is comparable across people with different deductions. Entering your take-home figure on an application understates your income by around 20% and can cost you the approval.
When income is not steady
This calculator scales one repeating amount. It does not describe variable pay, and three common cases break it:
- Overtime and bonuses. Lenders typically average the last two years rather than annualising a good month
- Commission. Usually assessed on a two-year average for the same reason
- Unpaid leave or gaps. Twelve months of $5,000 assumes twelve months of work
What this calculator leaves out
Tax of any kind, employer pension contributions, and non-cash benefits. It converts one number into another; it does not tell you what you can spend.
The 27-pay-period year
Bi-weekly pay produces 26 cheques in most years, but roughly every eleventh year the calendar delivers 27. On $2,500 a cheque that is an extra $2,500 landing in a single year with no raise attached.
Employers handle this in one of two ways: either you genuinely receive an extra payment, or the annual salary is divided by 27 instead of 26 and every cheque shrinks slightly. Which applies to you is written into the payroll policy, not the contract, and it is worth knowing before you budget the windfall.
Two jobs, or a job and freelance work
Add the annualised figure from each source rather than annualising the combined monthly total, because the pay frequencies usually differ. A salary paid monthly and freelance work invoiced weekly need separate conversions before they are summed.
Lenders treat the two differently as well: employment income counts immediately, while self-employment normally needs two years of filed returns before it is recognised at all.
Annualising a partial year
If you started a job in April, twelve months of pay is not what you will report for that tax year. Nine months at $5,000 is $45,000, and a lender assessing affordability today will still use the $60,000 annual rate because that is the ongoing figure.
The two numbers serve different purposes: the tax return needs what you actually received, the mortgage application needs what you now earn. Giving the wrong one in the wrong place is the most common error on this calculation.
Related calculators
- Salary calculator — the gross-to-net conversion this one deliberately skips
- Hourly to salary calculator — when you are paid by the hour
- Debt-to-income calculator — what lenders do with the annual figure