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Household Income

Updated on April 22, 2024
Article byJyotsna Suthar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Household Income?

Household Income refers to the total income earned by the earning members above a specified age in a household. Earning members above the age of 15 are considered for this computation. It is the sum of all the family members’ salaries, earnings, and profits after these inflows are adjusted for taxes and other deductions.

Household Income Meaning

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For eg:
Source: Household Income (wallstreetmojo.com)

Such income is not limited to monthly salaries but accounts for all types and sources of income every member makes while living under the same roof. It can be calculated for different periods, such as monthly, quarterly, or yearly, based on the purpose of computation. Irrespective of whether the income is used to support the household, it is accounted for while computing a household’s total income.

Key Takeaways

  • Household income represents the total gross income of a household comprising two or more individuals living under the same roof, irrespective of their relation. The earning members considered for this computation must be aged 15 and above. 
  • It includes salaries, wages, rental income, food stamps, welfare payments, social security payments, alimony, pension, dividend, freelance, or interest income.
  • Household earnings play a key role in determining the economic stability of people and constitute a country’s GDP.

Household Income Explained

Household income refers to the earnings a particular household generates over a specific time. It accounts for all the sources of income a household has, including inflows from every source. However, it is adjusted for taxes and deductions. It means the income left after paying taxes is accounted for in the calculation, not the in-hand income. Further, gross disposable household income estimates the funds households can spend or save after paying the applicable taxes, charges, or fees.

Many books and online sources discuss the household income meaning. The income earned by people living under the same roof is computed per this term. Every individual may bring income in some form into the household. It does not matter if such income is used to support the household, pay bills, or clear off debt. However, if children below the age of 15 earn money by engaging in jobs or freelance work, such income will not be included in this income.

The definition states that it is not required for people living under the same roof to be related by blood. It means people who share accommodation or space make households. It means friends, couples, or colleagues sharing space make a household. Governments use various metrics to determine the income of the people residing in a country. The household income percentile computation allows governments or related entities to compare the household earnings of different households with other households in a country.

Based on specific requirements, it is possible to calculate monthly, quarterly, or yearly house income for every household in a country. Household earnings highlight the financial stability of the people residing in a country. It is one of the determinants of a country’s gross domestic product (GDP).

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How To Calculate?

No specific formula has been defined to compute the income of a household. However, the total income of the household can be calculated using the steps listed below:

  • Identify the number of earning members aged 15 and above in a household. 
  • Derive the gross income of each individual from salaries, retirement or pension income, unemployment compensation, profits or gains, freelance income, interest earnings, etc.
  • Add the gross income to arrive at the amount earned by the household before paying taxes.
  • Once this income is adjusted for taxes, the remaining income is available to the household for spending or saving. This is called gross disposable household income.

In the US, the median house income in February 2023 was estimated at $80,893. This is an increase of $453 (0.6%) from the figure estimated in January 2023, which stood at $80,440.

Examples

Here are two examples of such income:

Example #1

Assume a family of four living in the same house has a teenager below the age of 15. House income only accounts for money earned by eligible earning individuals and not kids or children below the age of 15. Hence, the computation will be:

IndividualGross annual income
Peter (father)$90000
Tiffany (mother)$81000
William (son)$45000
Jessica (daughter)$1800

The family’s total gross income will be the sum of income of all the family members except the daughter, as she is a minor. Therefore, the house income of the family will be $2,16,000. If Jessica were above 15, her income would also be included, making the annual household income $2,17,800. If there were other monthly income sources, the amount would be multiplied by 12 to calculate the annual income and added to the final calculation.

Example #2

In a recent report published by the American Community Survey, Indian Americans have the highest median income of the household in the US. The amount totals around $100,500. The report says Indian residents earn more than people from Sri Lanka, Japan, China, and Pakistan residing in America. Rich McCormick, a renowned lawmaker, stated Indian Americans make up 1% of the US population and pay taxes to the tune of 6%.

Median Vs Average Household Income

When average and median incomes are almost equal, either can be used to summarize the income of the household in the geographic area.

Here are the key differences between these concepts.

ParticularsMedian Household IncomeAverage Household Income
MeaningIt divides gross income into two parts. This is the midpoint. Half of this division represents the households earning more, while the other half reflects the earnings of the households making less money in a given geographical location. Therefore, it outlines the median.It divides the total house income by the number of households in a given geographic area.
Accuracy and ValidityThis is a more precise and efficient indicator of the income of a geographical area because it is not influenced by a small number of extremely high- or low-income outliers.The average income of the household is not as precise since it involves independent, micro-level computations.
EffectsIt is not impacted by high-income households because it takes both high- and low-earning households into account.If it income is higher, it represents an income disproportionately concentrated in wealthy households.

Frequently Asked Questions (FAQs)

1. Does household income include roommates?

Yes. Roommates are considered while computing the total income of a household because house income represents the money earned by a group living under the same roof. Therefore, even if two or more people living together are not connected or related by blood, they still make a household.

2. Is household income gross or net?

It is the gross income generated by a household since it is not yet adjusted for taxes, fees, or other expenses. The gross house income is subject to taxes and deductions. When the net income of the household is calculated, all the expenses, such as wages, bills, utilities, etc., are subtracted from the said amount.

3. What is the difference between household income and family income?

When the earnings of different people connected by blood, marriage, or adoption are accounted for, the amount derived is called the family income. It also indicates that such individuals do not necessarily share space or live together. On the other hand, the income of the household refers to an address, apartment, or residence where people live together, irrespective of their blood relation or connection.

This article has been a guide to What Is Household Income. We explain how to calculate it, its examples, and comparison between median and average household income. You may also find some useful articles here –

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