What Is Personal Income?
Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses.
Key Takeaways
- Personal income is the amount of money collectively received by the inhabitants of a country.
- Sources of personal income include money earned from employment, dividends and distributions paid by investments, rents derived from property ownership, and profit sharing from businesses.
- Personal income is generally subject to taxation.
Understanding Personal Income
The term“personal income” is sometimes used to refer to the total compensation received by an individual, but this is more aptly referred to as individual income.In most jurisdictions, personal income, also called gross income, is subject to taxation above a certain base amount.
Personal income has a significant effect on consumer consumption.As consumer spending drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis.
In the United States, the Bureau of Economic Analysis (BEA) tracks personal income statistics each month and compares them to numbers from the previous month. Theagency also breaks out the numbers into categories, such as personal income earned through employment wages, rental income, farming, and sole proprietorships. This allows the agency to make analysesabout how earning trends are changing.
Personal income tends to rise during periods of economic expansion and stagnate or decline slightly during recessionary times. Rapid economic growth since the 1980s in economies such as China, India, and Brazil has spurred substantial increases in personal incomes for millions of their citizens.
Personal Income vs. Disposable Personal Income
Disposable personal income (DPI) refers to the amount of money that a population has left after taxes have been paid. It differs from personal income in that it takes taxes into account.
Analyzing after-tax income is important, as this is the money that the population is effectively left with to spend, save, or invest.
Only income taxes are removed from the personal income figure when calculating disposable personal income.
Personal Income vs. Personal Consumption Expenditures
Personal income is often compared to personal consumption expenditures (PCEs). PCEs measure changes in the price of consumer goods and services. By taking these changes into account, analysts can ascertain how changes in personal income affect spending.
To illustrate, if personal income increases significantly one month, and PCEs also increase, consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services.
Is personal income before or after taxes?
Personal income represents all payments made to individuals before tax. It’s not disposable income, which reveals how much people actually have left to spend, save, or invest after income taxes have been deducted.
How do you calculate personal income and disposable income?
To calculate personal income, all income collectively received by individuals or households in a country needs to be tallied up. That is not only gross pay from work but also dividends, rental income, interest, and so forth. Disposable income is then calculated by taking the personal income number and subtracting personal income taxes.
What is the difference between gross national income (GNI) and personal income?
Personal income focuses on how much money a country’s inhabitants are earning. Gross national income (GNI), on the other hand, reveals the total amount of money earned by a nation’s residents and businesses.
FAQs
Personal income represents all payments made to individuals before tax. It's not disposable income, which reveals how much people actually have left to spend, save, or invest after income taxes have been deducted.
What is the difference between disposable and personal income? ›
For an individual, gross income is your total pay, which is the amount of money you've earned before taxes and other items are deducted. From your gross income, subtract the income taxes you owe. The amount left represents your disposable income.
Is personal income equal to disposable income? ›
In national accounts definitions, personal income minus personal current taxes equals disposable personal income.
What is included in personal income? ›
What is Personal Income? Income that people get from wages and salaries, Social Security and other government benefits, dividends and interest, business ownership, and other sources.
How do you calculate personal income and personal disposable income? ›
The correct answer is Both Personal Incomes - Direct taxes and Consumption Expenditure + Savings. Personal Disposable income: Disposable income or disposable personal income is an economic term which means the money that is available for household consumption, savings and spending after accounting for income tax.
What qualifies as disposable personal income? ›
What is Disposable Personal Income? After-tax income. The amount that U.S. residents have left to spend or save after paying taxes is important not just to individuals but to the whole economy. The formula is simple: personal income minus personal current taxes.
What is excluded from disposable income? ›
Deduct the amounts that are required by law, such as IRS income taxes, FICA, Social Security and L&I. If union membership or pension contribution is mandatory, deduct union dues and/or pension amounts. Do not deduct such amounts as car Payments, non-mandatory union dues, or voluntary savings deposits.
What does the IRS consider personal income? ›
Income can be money, property, goods or services. Even if you don't receive a form reporting income, you should report it on your tax return. Income is taxable when you receive it, even if you don't cash it or use it right away. It's considered your income even if it's paid to someone else on your behalf.
What is excluded from personal income? ›
Income excluded from the IRS's calculation of your income tax includes life insurance death benefit proceeds, child support, welfare, and municipal bond income. The exclusion rule is generally, if your "income" cannot be used as or to acquire food or shelter, it's not taxable.
How do you show personal income? ›
How to Provide Proof of Income
- Annual Tax Return (Form 1040) This is the most credible and straightforward way to demonstrate your income over the last year since it's an official legal document recognized by the IRS. ...
- 1099 Forms. ...
- Bank Statements. ...
- Profit/Loss Statements. ...
- Self-Employed Pay Stubs.
More technically, disposable income—sometimes called disposable personal income (DPI)—is how much money is left after mandatory deductions. These tend to be taxes, including income tax, Social Security (which might be labeled as OASDI on your paycheck) and Medicare contributions, and state unemployment insurance tax.
How to determine personal income? ›
Personal Income (PI):
This measures all of the income that is received by individuals, but not necessarily earned. Examples of this include social security benefits, unemployment compensation, welfare payments, benefits for veterans, and food stamps. Individuals also contribute income which they do not receive.
What is the real disposable personal income? ›
The US Real Disposable Personal Income reflects the after-tax income available to US households adjusted for inflation, which can then be used for consumption or saving. This indicator is monitored by economists and investors to better gauge the health of the national economy.
What is the difference between personal income and disposable personal income quizlet? ›
The income households actually receive before they pay personal income taxes is: personal income. disposable personal income is what is left after personal income taxes have been paid while personal income includes personal income taxes. What is the difference between nominal GDP and real GDP?
What is the difference between PI and DPI? ›
Which of these states a difference between personal income (PI) and disposable personal income (DPI)? PI is measured before taxes are taken; DPI is measured after taxes are taken.
Is disposable income the same as personal savings? ›
Income left over after people spend money and pay taxes is personal saving. The personal saving rate is the percentage of their disposable income that people save. This rate is followed to learn about Americans' financial health and to help predict consumer behavior and economic growth.
Is disposable income the same as real income? ›
Disposable income usually refers to the income left to you after taxes. If your income is $50,000 and you owe $14,000 in taxes (state, federal, property), then your disposable income is $36,000. In economic data, the term “real” usually means “adjusted for inflation.”
