Learn How to Calculate the Different Types of Household Income
Household income can mean several different things in the world of finance. On applications for student loans, marketplace insurance through the Affordable Care Act (known popularly as Obamacare) program or on mortgage applications, tax forms and others, you’ll probably be asked to supply a prospective creditor with your annual, median or average household income. Learn how to calculate household income for each type of application before you start, so you’ll have a leg up on the terminology.
What Does Household Income Mean?
Household income is the total income from all the people who live in one household. It includes salaries, benefits and receipts from personal business, other income, dividends and any investments.
Household members don’t need to be related when determining household income. If all the members of one household are related, such as parents and children or siblings, the term is called “family income.” Mothers of older children who are already in the working world would list their children's income and their own, for example.
All types of calculations for household income in its different versions start with gross income before taxes and deductions.
What Does Household Income Mean When Applying for Student Financial Aid?
On student financial aid applications, household income can comprise the income of both parents and the student applying for aid, or, if you’re married, it can be your and your spouse’s income. If a student’s parents are divorced, the earnings of the parent and stepparent that he lived with for most of the year are considered.
The most common manner to obtain financial aid is by first completing the Free Application for Federal Student Aid (FAFSA) form. Types of income that qualify as household income include:
- Income from work
- Proceeds from asset sales, capital gains and dividends
- Withdrawals from retirement funds
- Any untaxed income, including elective retirement fund contributions and money spent on the student by non-parents
What Does Household Income Mean on the Affordable Care Act Application?
On the Affordable Care Act application, your household is based on your family income, including all the people on your tax return, such as head of household, spouse and tax dependents. Financial assistance on the health care plan application is based on household income and size.
To find your household income for this plan, you must do some calculations; it’s based on the Modified Adjusted Gross Income (MAGI) for head of household and spouse if you file a joint return, plus Adjusted Gross Income (AGI), including the AGI of anyone you claim as a dependent.
The MAGI is your AGI plus non-taxable Social Security benefits, tax-exempt interest and excluded foreign income. Locate your AGI on your tax return as follows:
- Form 1040EZ: Line 4
- Form 1040A: Line 21
- Form 1040: Line 37
Add your MAGI, your AGI and the AGI of any dependents to obtain your household income for the Affordable Care Act application.
What Are Annual, Average and Median Household Income?
These calculations are based on your income for the entire year. Your annual household income is simply all the income for all the people living in the household over the course of a year. Gather up any information like paycheck stubs or bank accounts and add the amount to obtain your annual household income. Divide the result by 12 to find your average household income.
Find the median household income by listing the total income for each month separately on a worksheet or paper. List the month with the smallest household income at the top and the other amounts down the page in ascending order. Your last entry is the month with the most income. The median is in the center of your list; however, since there are 12 months, the center falls between between June and July. Add June and July together and divide the sum by two to determine your median household income.
Mary Lougee has been writing for over 10 years. She holds a Bachelor's Degree with a major in Management and a double minor in accounting and computer science. She loves writing about careers for busy families as well as family oriented planning, meals and activities for all ages.