If you use your pay stub to try and figure out your annual salary, you’ll need to decide whether you want to figure out your gross pay or your net pay. Depending on your purpose, it might be better to know your gross pay; in other situations, knowing your net pay will help you better plan your personal finances. The easier calculation is how to find your gross annual salary before taxes, but it’s not hard to find net pay, as well.
Read More: How to Annualize a Salary
Salary vs. Wages
Not everyone who works full-time earns a salary. A salary is a pre-determined, set amount that covers a one-year period of work. Wages are earned hourly, or by unit – for example, you might earn $100 for every server shift you work, but you only work two or three times per week.
You might ask, “Is salary net or gross?” The agreed-upon amount of your annual pay is your gross amount. Lenders look at someone who earns a salary as a person who has a stable, annual income the lender can count on you to make (unless you get fired). If you earn wages, the lender doesn’t know how often you’ll earn money or how much income you’ll have to pay back a loan.
Read More: What Formula to Use to Calculate Annual Salary?
Gross vs. Net Pay
The base salary you earn is the amount of your contract agreement before taxes and other deductions. Your net pay is what you keep when you get your paycheck. For example, you might agree to work for an annual salary of $50,000. Out of that, you’ll have Social Security and Medicare payroll taxes deducted (FICA taxes).
You might opt to have a percentage of your income deducted from your check to earn a 401(k) match from your employer. You might purchase extra benefits, such as dental or vision insurance. Your pay stubs will show your gross pay for the week, two-week pay period or month (depending on how you’re paid), all of your individual deductions and the final amount of your check (your net pay).
Read More: How to Calculate Paycheck Withholdings
Calculating Annual Salary Before Taxes
If, for some reason, you don’t know your annual salary, or you’re trying to calculate someone else’s gross salary or annual net take-home pay, you should be able to do that using one pay stub. Your first step is to find out how often the person is paid. Most people are paid 52, 24, 26 or 12 times per year.
Next, look at the paystub for the “Gross Pay” amount. Multiply that by the number of pay periods and you have your annual gross pay. Let’s say you get paid twice each month (24 paychecks) and your gross amount on each check is $2,250. That means that $2,250 X 24 = $54,000 is your annual gross salary.
This will only be accurate with a salary, or if you are sure you will work the same number of hours and earn the same wages each paycheck. If you’re a wage earner, you might earn more money some weeks, such as by working extra hours. You might also earn less if there’s a temporary shutdown or you take sick days. You'll need to take this into account if you want to know how to find your annual income before taxes.
Calculating Net Pay
Whether you make a salary or earn wages, you can figure out how much money you’ll end up with in your bank account each year by taking the “Net Pay” amount and multiplying it by the number of pay periods you’ll have. That’s your annual net pay amount. This might change if your tax withholding changes, you decide to start (or stop) contributing to a 401(k), you add or drop voluntary benefits you’ve chosen to buy or you get a bonus or commission.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.