How to Find Pretax Earnings

Calculating pretax earnings involves a few simple steps.

Pretax earnings are the amount of money you make, or your net income, before Uncle Sam takes his share out in taxes. On a personal level, determining your pretax earnings can be important for reasons such as verifying your pay or reporting your income when applying for a loan. For those operating businesses, determining pretax income can be essential to attracting investors because it helps the investor examine the profitability of the company and its ability to raise revenue.

Things You'll Need

• Pay stub
• Annual W-2 earnings statement
• Financial statements

Instructions

1. Multiply the number of hours you worked for the pay period by your hourly rate of pay. This method of determining pretax earnings can be used by those who simply need to know their gross income when applying for a loan or other forms of credit. For instance, if your hourly rate of pay is $15 and you worked 40 hours for the week, your weekly pay would be $600 before taxes.

2. Calculate your monthly or yearly rate of pay as needed. If your weekly rate of pay is $600, then multiply this number times four to determine your monthly pretax earnings which, in this scenario, computes to $2,400 per month. To determine your annual pretax earnings, multiply your weekly pay rate times 52. The yearly pretax earnings in this example equals $31,200.

3. Use an alternative calculation method to eliminate a step. The previous method of calculation seems more natural for many people because it seems more natural to think in terms of weekly or monthly earnings. However, the Bureau of Labor Statistics calculates earnings based on the hourly rate of pay times 2,080, which is the number of hours you will typically work in a calendar year if you work a 40-hour work week. If your rate of pay is $15, multiply this figure times 2,080. The calculation results in the same total, $31,200.

4. Determine your pretax earnings based on your net profit. This calculation method can be used by those who operate a business and need to determine their pretax earnings for business valuation purposes. This method involves dividing your net profit by one minus your tax bracket rate. For example, if your net profit was $1 million for the year and your income tax rate was 36 percent, divide $1 million by one minus 0.36. This calculates to $1 million divided by 0.64, or approximately $1,562,600 per year before taxes.

References

• Bank Rate: Retirement Contribution Effects on Your Paycheck
• Federal Financial Institutions Examination Council: Appendix A: Tax-Equivalency Worksheet
• Value Line: FAQs