Household Income: What It Is and How to Calculate It

What Is Household Income?

The term household income generally refers to the combined gross income of all members of a household above a specified age. Household income includes every member of a family who lives under the same roof, including spouses and their dependents. The incomes of everyone count even if they aren't all used to support the household. Household income also includes anyone living in that home even if they're not related. 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 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 notes this threshold as 15 and older. It includes (but is not limited to) wages, salaries, self-employment earnings, Social Security benefits, pensions, 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 real U.S. median household income in 2021 was $70,785.
• 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 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 (ACA), 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.” Also, in determining eligibility for some public benefit programs, household income is calculated by deducting certain expenses or allowances from gross income.

Household income provides a picture of the standard of living of various households. It is also a good barometer of the local and national economies. This figure can also help lenders determine the potential risk of lending to a potential borrower. For instance, households with a lower income are more likely to default than those with higher earnings.

Special Considerations

The per capita gross domestic product (GDP) of a country should typically 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.

Household Income vs. Family Income vs. 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 measure how well people in a given area are doing financially. Here's how they stack up against one another.

• 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.

Average Household Income vs. Median Household Income

The range of households used to determine median and average household income may differ. Median is defined as being the middle number in a group. So if you have three incomes in one household of $35,000, $40,000, and $45,000, the median income is $40,000.

The Census Bureau counts households with no income in its calculation when it determines median household income in the United States. 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.

Example of Household Income

Let's use a hypothetical example to show how household income works. Let's say Sam earns $120,000 annually 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 figures are their only income, their total household income, as defined by the Census Bureau, is $240,000.

The Bottom Line

Income is any money that a person earns through work or by selling products and services. For most people, it refers to individual earnings through work. This can come in the form of salary, wages, tips, bonuses, and vacation pay. This is just one part of household income, which the Census Bureau defines as the gross income of all individuals under the same roof who are over 15. Not only does this figure provide a barometer of people's standards of living, but it can also be used for other reasons, such as assessing risk by lenders. You can calculate household income by adding every member's gross income together.