What Is Household Income?
Household income is generally defined as the combined gross income of all members of a household above a specified age. For some usages of the term, individuals do not have to be related in any way to be considered members of the same household. Household income is an important risk measure used by lenders for underwriting loans and is a useful economic indicator of an area's standard of living.
Understanding Household Income
Household income generally is defined as the total gross income before taxes, received within a 12-month period by all members of a household above a specified age (the Census Bureau specifies age 15 and older). It includes—but is not limited to—wage, salary, and self-employment earnings; Social Security, pension, and other retirement income; investment income; welfare payments; and income from other sources.
The definition of household income and its components varies depending on the context. The term may be defined in law or regulation, or may be determined by researchers or authors as an amount that includes or excludes specific items of income. Here are some examples:
- In calculating household income, the U.S. Census Bureau includes all pre-tax cash income of all individuals age 15 years or older belonging to a household, regardless of whether they are related to each other. The Census Bureau reported that U.S. median household income in 2019 was $68,703.
- Some programs and studies include the value of non-cash benefits or receipts, such as food stamps, in measuring household income. For example, the Congressional Budget Office (CBO) adds non-cash income, particularly in-kind government benefits and services, to cash income in estimating total income.
- In some contexts—such as different government programs and a wide range of economic surveys and studies—household membership may differ or the analysis may focus on individuals. For example, in determining who gets a subsidy to help pay for health insurance through the Affordable Care Act, the definition of household income includes “yourself, your spouse if you're married, plus everyone you'll claim as a tax dependent, including those who don’t need coverage,” according to HealthCare,gov. Also, in determining eligibility for some public benefit programs, household income is calculated by deducting certain expenses or allowances from gross income.
- Household income, as defined by the U.S. Census Bureau, refers to the combined gross cash income of all members of a household, defined as a group of people living together, who are 15 years or older.
- It is used to evaluate the economic health of an area or to compare living conditions between geographic regions.
- The definition of household income depends on context: Who belongs to a household and which items are included in income may vary in different studies and for different government programs.
Example of Household Income
Sam earns $120,000 per annum from his job as a finance professional. His spouse Alex earns $80,000 as an analyst. Together, their family income is $200,000. Sam's nephew Jim also lives with them. Jim earns $40,000 as a salary from his job. Assuming these individuals' earnings are their only income, their total household income, as defined by the Census Bureau, is $240,000
Median vs. Average Household Income
The range of households used to determine median and average household income may differ. In determining median household income in the United States, the Census Bureau counts households with no income in the calculation. However, some other income analyses, particularly ones focusing on various average income statistics, use only positive income amounts.
When median and average amounts of household income are calculated for all U.S. households, the average figure will always exceed the median because of the impact of the small number of U.S. households with exceptionally high incomes.
Difference Between Household Income, Family Income, and Per Capita Income
Household income is one of three commonly cited measures of individual wealth. The other two, family income and per capita income, take different approaches to measuring how well people in a given area are doing financially.
- Household income, as defined by the U.S. Census Bureau, includes the gross cash income of all people ages 15 years or older occupying the same housing unit, regardless of how they are related, if at all. A single person occupying a dwelling alone also is considered a household.
- Family income considers only households occupied by two or more people related by birth, marriage, or adoption.
- Per capita income measures the income earned by each individual in a given area. Therefore, two-income earners in the same family or household are counted separately when measuring per capita income.
Typically, the per capita gross domestic product of a country should increase along with the median household income. In recent years, a divergence has been seen between these figures in the United States. In turn, this has led to discussions about referencing median household income as a better indicator of economic well-being than GDP.