How to Calculate Income When Hours Vary

How to Calculate Income When Hours Vary

Hours Per Week Vary

When the borrower’s hours vary per pay period we calculate the base income averaging the most recent year-to date (YTD) plus previous tax year’s earnings.
  1. # OF FULL MONTHS PASSED IN CURRENT YEAR
    1. If paystub is through 6/15, the number of ‘full’ months passed in the current year is 5
  2. # OF DAYS PASSED IN THE CURRENT MONTH / TOTAL # OF DAYS IN THE MONTH
    1. If paystub is through 6/15, the number of days passed in the current month is 15
    2. Determine the percentage of the month by dividing the total number of days in the month by the number of days passed
  3. Add steps 1 & 2 together
  4. Add an additional 12 month for the previous tax year

    Example: If the paystub is through 6/15, the number of full months passed in the current year is 5. The number of days passed in the current month is 15. There are 30 days in June, so the portion of the month passed is 15/30, which is 0.5. The total months passed so far is 5 + 0.5 = 5.5 months.

  5. Review the W2 from the previous year
    1. Determine if the W2 is for a full 12 months
    2. Determine the full number of months to be averaged
      1. Previous year # of months +
      2. Year to Date # of months as determined in step 3
  6. Add the YTD earnings to the total earning from the previous year as indicated on the W2
  7. Divide this total by the number of months in step 5

    Example: 
    The pay period ends on 4/20. 
    The YTD wage is $9,100. 
    Last year's W2 total is $31,200.
    Full months passed = 3
    Fraction of current month = 20/30 = 0.67
    Total months passed = 3.67
    Plus last year = 12 + 3.67 = 15.67
    $9,100 YTD + $31,200 Last Year = $40,300
    $40,300 / 15.67 months = $2,571.79 per month

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