Annualized Income
Candlefocus EditorAnnualized income can be used to evaluate a person's financial capabilities and determine their ability to pay for necessities such as housing and food. It is also used to identify the eligibility for certain programs or benefits that require a certain level of annualized income. In addition, it is a tool used by employers to compare job applicants’ economic stability as it speaks to overall financial responsibility.
Annualized income is comprised of several components. Earned income is the total amount received from wages, tips, salaries, and other reported earnings. Unearned income includes Social Security supplement income, government benefits, alimony, and payments received from pensions and annuities. Non-taxable income, such as gifts and inheritances, may also be included in the annualized income figure.
The exact formula used to calculate a person’s annualized income varies between companies and from state to state, however, the calculation usually involves dividing an estimated sum of income over either a 12 month or 24 month period. It is important to note that an annualized income does not take into account savings, deductions, or other types of line item expenses when calculating total income.
Annualized income is a valuable measure of financial stability, particularly in the eyes of potential employers. By providing employers with an accurate picture of a person’s current economical situation, employers are better-equipped to invest in the right candidates for the job. Annualized income is also beneficial to the individual, because it can provide insight into their ability to pay for life’s necessities, and also inform their eligibility for specific benefits or services.