What is ‘income’
Disposable income, also known as disposable personal income (dpi) is the amount of money that households available for spending and saving after-tax incomes were taken into account. Disposable personal income is often seen one of the many key economic indicators used to assess the overall state of the economy.
Breaking down the ‘income’
Disposable income is an important indicator of household financial resources. For example, consider a family with income of $ 100,000, and the family has an effective income tax at the rate of 25%. The disposable income of this family will $75,000 (100,000 $- 25,000$). Economists use DPI as a starting point for estimating rates of household savings and expenses.
Statistical use of disposable income
A lot of useful statistics and economic indicators derived from disposable income. For example, economists use disposable income as starting point to calculate metrics such as discretionary income, personal savings, marginal propensity to consume (MPC) and marginal propensity to save (MPS) is.
Disposable income minus all payments for necessities such as mortgage, medical insurance, food and transport, as well discretionary income. It’s part of disposable income can be spent on something that the provider chooses or, alternatively, it can be saved. The personal savings rate is the proportion of disposable income that goes into savings for retirement or use at a later date. The marginal propensity to consume represents the percentage of each additional dollar of disposable income which is spent, while the marginal propensity to save is the percentage that will be saved.
For several months in 2005, the average personal savings rate fell for the first time since 1933. This means that in 2005, Americans spent all of their income each month, and then tapping into debt for further spending.
Of income for imposition of penalty wages
The Federal government uses a slightly different method for calculating income for the purposes of imposition of penalty wages. Sometimes, the government garnishes the wages of the breadwinner for the payment of taxes or delinquent child support. It uses disposable income as a starting point to determine how much to withdraw from the salary of the working spouse. Starting in 2016, the amount recovered may not exceed 25% of disposable income or the amount by which weekly income exceeds 30 times the statutory minimum wage, whichever is less.
In addition to income tax, the government deducts health insurance and voluntary Pension Fund contributions from total income when calculating income for the purpose of imposition of penalty wages. Returning to the above example, if the described family pays $10,000 a year on health insurance premiums and is obligated to contribute $5,000 to a Retirement plan, his income for the purposes of imposition of penalty wages shrinks from $75,000 to $60,000.