What Is Household Income? Knowing Yours Can Help You Budget and Save
Household income may seem like a self-explanatory term, but it has an official definition. According to the U.S. Census Bureau, the household income definition is the combined gross income of every resident — over 15 years old — of a particular residence.
Understanding this income category and knowing precisely what your income is can help you plan your finances, qualify for benefits and possibly save you some money.
How To Calculate Household Income
Because household income is an aggregate (combined) income figure, calculating it is a straightforward process. All you need to do is add up the gross, recurring income of all people living in one house who are over 15 years of age.
How Do You Calculate Total Household Income?
Here’s how to make the calculations:
- A household of two adults and two minors all live at one address.
- Adult A
- Earned $32,000 as an employee of an outside company
- Received an $11,000 legal settlement
- Adult B
- Earned $34,000 as a self-employed business owner
- Child A, 17 years old
- Earned $3,200 as a part-time retail associate
- Child B, 14 years old
- Earned $420 mowing lawns
- Exclude Adult A’s legal settlement because it is not recurring.
- Exclude Child B’s earnings because Child B is under 15.
- Adult A income + Adult B income + Child A income = Household Income
- $32,000 + $34,000 + $3,200 = $69,200
If your goal is to calculate your household’s annual income, you’ll need to start with definitions of the key terms. Here’s what you need to know.
What Is a Household?
A household means one or more people who all live in the same housing unit — whether related or not. The housing unit can be an apartment, a condo or a detached single-family home. As long as it is a separate residence that is the permanent address of a person or group of people, it counts as a household.
Additionally, no official minimum or maximum size qualifies as a household. It can be as big as a mansion with more than a dozen people living in it or as small as a mobile home that houses only one or two.
Good To Know
As of 2019, there were over 128.5 million households in the U.S., according to the U.S. Census Bureau, and the number is growing fast.
What Is Household Income?
Income can come in many forms, but in this case, only gross, recurring income counts.
- Gross income is income before taxes and other deductions are removed.
- Recurring income is income that you can count on every month.
Examples include a biweekly salary from a job, child support payments or annuity payments. The key factor is if the household can generally count on receiving the income regularly.
What Is Household Income On a Tax Return?
There is no line item named “household income” on U.S. tax returns. Personal taxable income is determined on an individual basis or jointly with a spouse.
For practical purposes, however, household income on tax returns is the gross income of you, your spouse and all dependents who file taxes. The figure is used to determine if a tax filer owes a penalty tax for not having health coverage under The Affordable Care Act.
Why Is It Important To Know Your Household Income?
Household income is not to be confused with family income — income among family members who are related and living together — or per capita income, which is a geographic measure of income among people living in a certain area like a city or state.
Here are some reasons why household income is calculated.
Determining Government Benefits
Many government benefits and assistance programs are based on income levels. Members of a household may be eligible for assistance or benefits related to food, rent or education, depending on the household income before taxes.
Qualifying for Bank Loans and Credit
Banks consider a borrower’s income when making lending and credit decisions. If you know your household income, you’ll be able to more accurately estimate the size of the loan or mortgage you can afford. You’ll also know which credit cards you may qualify for and which you probably won’t.
Determining Health Insurance Premiums
Having adequate health insurance is important to everyone, but coverage can be costly. Depending on household income, however, individuals and families can save money on health coverage by qualifying for a subsidized plan.
What Does Subsidized Mean?
Receiving a subsidy means that the government will pay part — sometimes a sizable chunk — of the plan premium for you. You can see if you qualify at HealthCare.gov.
Budgeting and Saving
It is impossible to construct a proper household budget unless you know your household income. Only after you have a firm grasp on income will you will be able to manage expenses. A well-constructed budget will show you how much money you can afford to save for your long- and short-term financial goals.
Other Uses of Household Income Data
Household income is an important economic metric used by economists, central bankers and politicians. They watch for changes — up or down — that indicate the economy’s relative health and use the information to set economic policy and distribute benefits.
What Is the Average Household Income In the United States?
According to the most recent data, the median household income in the United States for 2019 was $65,712. Calculating your personal household income percentile and comparing yourself to the national numbers can be an interesting and informative exercise. You’ll have a better understanding of where you are on the economic scale — and if you’re where you want to be.
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- U.S. Census Bureau. 2020. "Subject Definitions."
- U.S. Department of Health and Human Services. "Definition of Family."
- Healthcare.gov. "Who's Included in Your Household?"
- IRS. "Individual Shared Responsibility Provision."
- USA.gov. 2020. "Benefits."
- Consumer Financial Protection Bureau. 2019. "Why Is the 43% Debt-To-Income Ratio Important?"
- Consumer.gov. "Making a Budget."
- U.S. Census Bureau. 2020. "Household Income: 2019."