What Is Household Income?

Household Income Explained

Man working on home finances at dining room table
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Household income is almost all types of income brought into your home by you, your family members, and any others who live with you. It can be earned or unearned income. 

Household income can be calculated in a few different ways, depending on which elements of it matter for formulas used by a particular agency or program. Several government programs rely on household income for determining eligibility for benefits and tax credits, both at the federal and state level. Some programs include types of income that the others don’t. 

Definition and Examples of Household Income

A household—and by extension, its income—almost always includes spouses and their dependents. But that’s a traditional household or family, and not all fit that mold. 

The U.S. Census Bureau includes any individuals age 15 or older, regardless of whether they’re related. Household income includes what each of them earns, even if they don’t use their money to support the household. This might be the case with a 17-year-old who works a part-time job and uses the income purely for their own enjoyment. This income can be included, particularly at the state level. 

Some states, such as Vermont, include the incomes of spouses or civil union partners—even if they don’t reside in the residence—if the couple is not separated or divorced by court order.

Many households consist of just one individual, without roommates or family members who reside with them. This constitutes a household, as well, and the nation’s average household income is usually less than its average family income because these single-person households are included.

For example, let’s say:

  • Joe lives alone, earning $35,000 annually. 
  • Josie and John live together, just the two of them, and they earn $70,000 jointly. 
  • Jackie and Janie live together and share their home with Jackie’s sibling. Their three incomes combined work out to $50,000. 

The average of these three household incomes—about $51,667—works out to just slightly more than what the three-person household brings in, but is a good bit more than Joe’s household income or that of Jackie and Janie individually. Yet they’re all defined as household incomes. 

Average Household Income vs. Median Household Income 

“Average” household income is different from “median” household income. Half of all families have more than the country’s median, and half have less. A median figure is literally right in the middle. It includes households with no income at all. Median household income figures are most often used by the U.S. Census Bureau, and it has revised its calculations for arriving at these figures a few times over the years. 

How Household Income Works

Household income determines eligibility for insurance through the Health Insurance Marketplace, for financial assistance programs, and for some tax benefits. The defining rules for household income can vary between entities and programs. 

The Health Insurance Marketplace

Purchasing health insurance through the Health Insurance Marketplace requires that you estimate your household income for the coming year, adding in all household members, including those who won’t need coverage. You can’t just use last year’s income. This marketplace determines your eligibility using modified adjusted gross income (MAGI), which is effectively your taxable income with certain tax deductions added back in. 

The U.S. Census Bureau

The Census Bureau uses household income data to establish poverty status and guidelines for numerous federal purposes. It also determines the country’s poverty rate for legislative and documentation purposes. 

The Census Bureau does not include the incomes of household members who lived in the home at some point during the last year but no longer reside there at the time data is collected from the household. It does include the incomes of individuals who didn’t live in the residence during the past year but who literally might have moved in on the day of the interview.

The Census Bureau uses pretax income figures—gross earnings before you begin claiming various tax deductions. It includes everyone in the household age 15 or older, regardless of whether there’s any familial relationship.

Internal Revenue Service

The IRS uses every household member’s MAGI for determining eligibility for the premium tax credit, but only if the party is required to file a tax return by law. This depends on income thresholds, so very low earners are typically exempt. 

The IRS defines MAGI as the individual’s adjusted gross income plus sources of income that they were able to exclude to arrive at this number. This might be foreign income, Social Security benefits that wouldn’t normally be taxable, and tax-exempt interest. It does not include Supplemental Security income they might receive. 

Supplemental Nutrition Assistance Program (SNAP)

SNAP, which used to be known as “food stamps,” measures household income in three ways to determine eligibility:

  • Gross monthly household income before any allowable deductions are made
  • Net household income after deductions
  • The total value of a household’s assets that could potentially be sold to raise money for food

Deductions can be taken for must-pay household costs, such as rent and utilities, as well as for dependent care, child support, and out-of-pocket medical expenses for certain household members.

Types of Household Income

These rules encompass virtually all sources of income, earned and unearned, but some qualifying rules do apply to a few of them. The list of includable income is extensive. It breaks down like this for the most common programs, but other programs might have their own rules, particularly for more obscure sources of income.

Income Source Rules and Exceptions
Taxable wages Your total earnings for the year, fewer deductions made by your employer for child care, and your retirement and health insurance plan contributions
Self-employment income Your total earnings less allowable business expenses 
Capital gains income 
Investment income Includes interest, tax-exempt interest, dividends, rents, and royalties 
Unemployment compensation 
Social Security retirement benefits Your total benefits, both the taxable and non-taxable portions 
Social Security disability benefits
Supplemental Security Income (SSI) Included by the Census Bureau, but not by the Health Insurance Marketplace
Worker’s compensation benefits Included by the Census Bureau, but not by the Health Insurance Marketplace
Retirement or pension income Includes most IRA and 401(k) withdrawals, except for designated Roth 401(k) accounts. The Census Bureau includes both government and non-government pensions and annuities 
Alimony Only for divorces or separations finalized before Jan. 1, 2019, but the U.S. Census Bureau doesn’t make this distinction 
Child support Excluded by the Health Insurance Marketplace but included by the U.S. Census Bureau
Public assistance Included by the U.S. Census Bureau and by some states 

Economic stimulus payments received in 2020 or 2021 in response to the coronavirus pandemic are excluded by the Marketplace. It also excludes veterans’ disability benefits. 

Furthermore, the U.S. Census Bureau includes financial assistance provided to a household by anyone who doesn’t live there, such as a friend or family member. 

Key Takeaways

  • Household income determines eligibility for government assistance programs and some tax credits.
  • The U.S. Census Bureau also tracks household income data for statistical purposes.
  • Household income is usually defined as both earned and unearned income sources of everyone age 15 or older who lives in a home.
  • Different programs and agencies can exclude certain types of income, such as child support and worker’s compensation benefits. 
  • Check with any government program you’re considering applying to for answers to any questions about what counts as income.