In this article, we’re answering “What does annual income mean?” But, we’ll be looking at it from the perspective of banking and credit card applications.
Below, you’ll find everything you need to know, including how to calculate annual income and answers to common questions we receive from our members.
This article is part of our series on banking basics, ranging from opening different types of bank accounts around the world to understanding how various aspects of the banking system operate.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Does Annual Income Mean?
- Why Is Annual Income Important In Banking?
- Gross Income vs Annual Income
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Does Annual Income Mean?
Annual income means the total gross income that an individual or household earns within a calendar year. Importantly, this is not your net income, which takes into consideration your annual income and taxes, and other deductions. Instead, it is your total annual earnings prior to any deductions.
That said, if you are applying for credit cards, loans, or other products with a financial institution like a bank or credit card provider, they may specifically ask for your “annual net income”. If your annual net income is requested, this is your total income after all deductions.
Needless to say, annual income and financial planning go hand in hand. This is true in terms of retirement, savings goals, living a specific lifestyle, paying for expenses, accessing specific debt financing, and more. Not surprisingly, individuals exploring increasing annual income strategies are often seeking a means to improve one of these goals.
Why Is Annual Income Important In Banking?
In terms of banking and credit card applications, the importance of annual income often relates to a borrower’s ability to service any outstanding debt. In other words, does a prospective borrower have an average annual income that is high enough to qualify for the borrowing facilities they want to obtain?
With this in mind, if you know the income requirements of a specific lender, you want to understand how to calculate your yearly income. We’ll share this with you below along with a few income examples.
Of course, if you are a contract worker, you may be looking to understand how your monthly income relates to your total yearly income. To help you with this, we will also look at annual income vs monthly income, and break down different types of income as well.
But first, let’s start by taking a look at one of the biggest misunderstandings when it comes to annual income, which is how it compares to gross income.
Gross Income vs Annual Income
The main difference between gross income and annual income is that gross income is the total amount of money that an individual earns within a calendar year before any deductions. On the other hand, this may also refer to gross income, but in banking and finance, it often refers to net income during a year. We’ll take a closer look at both of these terms below.
Gross Income
Gross income refers to the total amount of money an individual earns in a calendar year prior to any deductions.
Annual Income
Annual income typically refers to the total amount of money an individual earns in a calendar year after certain dedications have been accounted for. These deductions usually include taxes and major expenses.
That said, this can also refer to gross income if the bank or credit card issuer specifically requests it.
What Does Taxable Income Mean?
Taxable income refers to the portion of an individual’s income that is subjected to tax by the government in their country of tax residence.
What Does Hourly Income Mean?
Hourly income refers to the amount of money that an individual earns at their place of employment for each hour worked.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
How Do I Figure Out My Annual Income?
To figure out your annual income, you need three key data points, which include the amount of money that you get paid for every hour worked, the number of hours you work per week, and the total number of weeks you work per year. You then multiply these three numbers and end up with your total annual gross income.
What Is the Annual Income for $15 an Hour?
The annual income for an individual earning $15 an hour depends on the total hours worked per week. It also depends on the total number of weeks worked per year. If you assume that the individual works full time with no changes in their schedule, they would have an income of USD 31,200.
What Is the Annual Income for $18 an Hour?
The annual income for an individual earning $18 an hour depends on the total hours worked per week. It also depends on the total number of weeks worked per year. If you assume that the individual works full time with no changes in their schedule, they would have an income of USD 37,440.
What Is the Annual Income for $20 an Hour?
The annual income for an individual earning $20 an hour depends on the total hours worked per week. It also depends on the total number of weeks worked per year. If you assume that the individual works full time with no changes in their schedule, they would have an income of USD 41,600.
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