What is household income?
Household income is the total gross income of all members above a certain age. Household income includes spouses and dependents. Even if they don’t support the family, everyone’s income counts. Even unrelated household members get revenue. Banks utilize domestic income as a risk factor for loan underwriting and an economic indication of an area’s living level.
Knowing Household Income
Household income is the total gross income before taxes obtained by all household members above a certain age in 12 months. The Census Bureau sets this at 15 or older. It includes wages, salaries, self-employment, Social Security benefits, pensions, retirement income, investment income, welfare payments, and other income.
Different contexts define family income and its components. Legislation, academics, or writers may define the word as a sum that includes or excludes certain revenues. Some examples:
- To calculate domestic income, the U.S. Census Bureau considers all pre-tax cash income of persons aged 15 or older, regardless of relationship.
- The most current Census Bureau data shows that the U.S. median family income was $74,580 in 2022.
- Programs and studies may use non-cash benefits like food stamps when calculating domestic income. The Congressional Budget Office estimates total income by adding non-monetary income, such as in-kind government benefits and services, to cash income.
- Household membership may vary in government programs, and many economic surveys and research studies may focus on individuals. The Affordable Care Act (ACA) defines domestic income as yourself, your spouse, and all tax dependents, even those who do not require coverage, for assessing eligibility for health insurance subsidies. Some public benefit programs measure family income by subtracting specific expenditures or allowances from gross income.
Domestic income indicates the level of life in different households. It’s an excellent indicator of the local and national economies. This number can also help lenders assess a borrower’s risk. Households with lower incomes are more likely to default than those with higher salaries.
Special Considerations
Countries should see a rise in per capita GDP and median domestic income. These numbers have diverged in the U.S. in recent years. This raised the possibility of using median household income instead of GDP to measure economic well-being.
The average Domestic Income has increased since 1970, according to research. The most significant increases are in high-income households.
Household, family, and per-capita income
Three typical wealth indicators include domestic income. Using various methods, family and per capita income assess overall financial well-being in a specific area. Here’s their comparison:
- The U.S. Census Bureau defines household income as the gross cash income of all adults 15 or older living in the same dwelling unit, regardless of relationship. An individual living alone is also a household.
- Family income only accounts for families with two or more related individuals by birth, marriage, or adoption.
- Per capita income evaluates each person’s income in a region. Thus, per capita income excludes two-income earners in the same family or household.
Average vs. Median Household Income
All household members 15 and older, related or not, earn family income. To get the average domestic income, sum all household incomes and divide by the total number of households. In comparison, the median household income is the income level of a cohort where half the families earn more and half earn less.
Median income better indicates Americans’ financial well-being than average domestic income. A few multi-millionaires or billionaires can distort the average family income, making it substantially greater than reality.
When calculating median domestic income in the U.S., the Census Bureau includes low-income families. Some income assessments, especially those employing average figures, use solely positive income.
Due to the tiny number of high-income U.S. families, the average domestic income will always surpass the median.
Household Income Example
Use a hypothetical scenario to explain domestic income. Say Sam makes $120,000 as a financial professional. His analyst husband, Alex, makes $80,000. Their family earns $200,000. Jim, Sam’s nephew, stays with them. Salesperson Jim makes $40,000. The Census Bureau calculates their domestic income at $240,000 if these are their only incomes.
How is household income defined?
Household income is the 12-month gross income of all household members. This number includes the wages of all 15-year-olds in the household, regardless of relationship.1Wages, salaries, retirement income, investment income, Social Security payments, and other income streams are sources.
What’s the Difference Between Median and Average Domestic Income?
Average domestic income is the sum of all revenue earned by household members aged 15 or older, regardless of relationship. Add all household incomes and divide by the number of households to obtain the average. In a given demographic area, half the households earn more and half less than the median income.
How do I calculate household income?
Collect all 15-year-olds’ gross income. Include all income, including salary, tips, bonuses, retirement, and welfare—Social Security, etc. Calculate domestic income by adding these.
The Verdict
Income comes from employment or selling goods and services. Most people think of work-related incomes. It might be salary, earnings, tips, bonuses, or vacation compensation. This is one aspect of household income, which the Census Bureau defines as the gross income of all housemates over 15. Lenders can use this statistic to analyze risk and measure people’s living levels. Add each member’s gross income to compute domestic income.
Conclusion
- Gross household cash income is all household members’ combined income.
- According to the Census Bureau, a household is a group of individuals living together, regardless of relationship.
- Household income measures economic health and living circumstances.
- Studies and government initiatives define family income differently.
- The three wealth measurements are family, per capita, and domestic income.
