How to Calculate Household Income?

Updated · Apr 06, 2022

Household income is an important measure of financial well-being, poverty, and inequality. It includes the earnings from a variety of sources, such as wages, investments, and government benefits.

Which ones you’ll include depends on what you need the measure for. Although calculating household income isn’t difficult, there are several things you have to consider.

In this article, we discuss the meaning of household income and how to calculate it.

What Is Household Income?

Household income is the sum of all household members’ earnings. Which people and sources of income count toward it depends on the purpose of the calculation.

It can be a measure of economic well-being, part of a benefits program or loan application, or a way to evaluate your family’s financial situation.

There are several factors influencing household income. Among them are the number of earners, the type of work they do, and the expenses they have. Plus, there’s the cost of living and the tax system.

Typically, the household income calculation includes salaries, tips, interest payments, dividends, and rent. You might need the total income before taxes, the after-tax earnings, or the adjusted income.

Below, we provide comprehensive lists of what you need to include and exclude in each case.

How to Calculate Household Income?

Calculating household income is simple.

The more difficult part is deciding which members and sources of income to include in the calculations.

So, we put together a comprehensive guide to help you.

Who to Include in Your Household?

It depends why you need to know your total household income.

If you’re applying for a subsidy for health insurance or a government or public benefits program, you most likely need to consider:

  • Tax filer (you)
  • Spouse (if you’re married)
  • Tax dependents—This would be any child under 19 or under 24 for full-time students. Anyone in your household with an annual income under $4,300 (as of 2021) is also considered a tax dependent.

The US Census Bureau, on the other hand, includes all individuals over the age of 15 from the same household, related or not.

So, if you’re reading official stats about income or are filling in a survey, that’s what’s likely to be included.

What Is Considered a Household Income?

Here’s a list of the earnings sources you need to include in the calculation of household income:

  • Salary
  • Unemployment compensation
  • Self-employment income
  • Tips
  • Social Security
  • Retirement or pension
  • Social Security Disability Income (SSDI)
  • Capital gains
  • Investment earnings
  • Rental and royalty income
  • Untaxed foreign income

What is the list of household income sources that are excluded from the calculation?

  • Proceeds from loans
  • Child support
  • Worker’s Compensation
  • Supplemental Security Income (SSI)
  • Child Tax Credit checks
  • Gifts
  • Veterans’ disability payments

The case with alimony is a little more complicated. It depends on when the divorce was finalized.

If it was finalized in 2019 or later, alimony payments will be included in the calculation. If it was before 2019, they need to be excluded.


To lower your total household income, you’re allowed to deduct some expenses. Here is the list of costs you can exclude from the calculation:

  • Student loan interest
  • Educator expenses (for teachers)
  • IRA contributions
  • Tuition fees
  • Alimony paid
  • Moving expenses

How to Calculate Household Income

Now that you know what to include, calculating household income is simple. You just add up the total income of all household members.

Start with the gross income (earnings before taxes).

Then, if you need the net amount, subtract any taxes and deductions that may apply from each individual income. We explain when this might be required below.

You can use an annual household income calculator. Or, you ​can use this simple equation:

household income = total income of all household members - taxes or other deductions

Let’s see an example.

Example of Household Income

Lisa is a single mom, which brings in $4,000 per month. Her daughter, Sarah, who is 16, works part-time and earns $1,000 per month.

Her son, the 14-years-old Alex, mows the neighbors’ yards. He contributes around $1,000 per year to the household income.

With them, lives Lisa’s father, Jacob, who earns $2,500 per month.

Although there are four people in this household, we will only include three of them in the calculations. Since Alex is under the age of 15, his income won’t be considered.

So, Lisa’s gross annual income is $48,000. Sarah’s is $12,000, and Jacob’s is $30,000. Their household annual income is $90,000 before taxes and deductions.

How to Calculate Adjusted Gross Income?

To determine your eligibility for certain tax deductions and credits, you might need to calculate your Modified Adjusted Gross Income (MAGI).

It is also used in place of your Adjusted Gross Income (AGI) when you’re applying for health insurance, CHIP, Medicare, and Medicaid.

To calculate your MAGI, you need to know your AGI. So let’s start with that.

How Do You Calculate Adjusted Gross Income?

Adjusted Gross Income (AGI) is used to determine your taxable earnings.

To calculate your AGI, you need to add up your earnings from all sources, minus the following deductions:

  • Student loan interest
  • Contributions to a traditional IRA or 401k
  • Job-related moving expenses
  • Alimony payments

How to Calculate Your MAGI?

To calculate MAGI, you start with your AGI. Then, add back in these deductions:

  • Rental losses
  • 50% of self-employment taxes
  • Foreign income
  • Taxable Social Security income
  • Certain tuition expenses
  • Student loan interest deposits

How to Calculate Total Household MAGI?

So, how to calculate household income for health insurance, CHIP, Medicare, and Medicaid? Follow these steps:

    • Make a list of every member of your household that needs to file a tax return
    • Calculate the AGI for everyone on the list
    • Make the necessary adjustments to the individual AGI to get the MAGI
  • Add up the MAGI of all household members

How to Calculate Expected Household Income?

Knowing what your expected household income is can help you with the financial planning for your family. For example, you can use it to decide whether it’s a good time to take on a loan or make big career changes.

You have to take into account many factors when calculating it. Here are the steps you need to follow:

  • Add up the annual salaries of all household members
  • Include other sources of income, such as capital gains, tips, pension, etc.
  • Subtract taxes and add tax-exempt income
  • Consider any major changes you expect in the earnings of household members during the following year

What might these major changes be?

For example, if one of your household members is about to start a new job, you should use their new salary in the calculations.

You should also consider any changes in the cost of living, such as increasing rent or grocery prices. Also, if you are planning any big purchases, such as a home or a car, you need to factor in the associated costs.

Managing your family budget is not easy, but it is important. Calculating your expected household income can help you make sure you have enough money to cover your expenses.

Wrap Up

Household income is the total amount a household earns in one year. The process for calculating this can vary depending on what you need it for.

You might be applying for a loan or health benefits, filing tax returns at the end of the year, or simply evaluating your family's financial situation.

Whatever the occasion, the main steps are the same: determine who's included, then calculate individual incomes and add them up.

We outline the specifics of how to calculate household income for different purposes in the article above.

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.