Disposable Income Calculator
Enter personal income, taxes and government transfers to see the disposable income, the amount left to spend or save.
Updated
Disposable Income Calculator
Our Disposable Income Calculator works out how much income is left after taxes are paid and government transfers are received. Type the personal income, the taxes and, if there are any, the transfers. It returns the disposable income along with net taxes, the average tax rate and the share of income that is kept. It suits economics students working through national income questions, households planning a budget and analysts comparing after-tax income between years or groups.
Quick answer
Disposable income is personal income − taxes + transfers: with an income of 50,000, taxes of 10,000 and transfers of 5,000, 50,000 − 10,000 + 5,000 = 45,000.
- Personal income: wages, business income, interest, dividends and rent before tax.
- Taxes: income and other direct taxes paid to the government.
- Transfers: benefits and pensions received from the government. Leave blank if there are none.
- Net taxes: taxes − transfers. Disposable income is income − net taxes.
What Is Disposable Income?
Disposable income is the money a person, a household or a whole economy has available to spend or save once direct taxes have been taken off and government transfers have been added. In national accounts it is called disposable personal income, or DPI.
It matters because it is the pool that all consumer spending and saving comes from. When disposable income rises, households can buy more or save more. When it falls, one of the two has to give.
Disposable Income Formula
- DPI: disposable personal income.
- PI: personal income before tax.
- T: taxes paid to the government.
- TR: transfers received from the government.
Taxes take money out of the household and transfers put money back in. The gap between the two is called net taxes, so the same formula can be written in a shorter way:
DPI = PI − net taxes
How to Calculate Disposable Income
A household earns 50,000 in a year, pays 10,000 in taxes and receives 5,000 in benefits:
= 45,000
- Start with personal income. 50,000.
- Subtract taxes. 50,000 − 10,000 = 40,000.
- Add transfers. 40,000 + 5,000 = 45,000.
The disposable income is 45,000. Net taxes are 10,000 − 5,000 = 5,000, the average tax rate is 20% and the household keeps 90% of what it earned.
From Personal Income to Disposable Income
Read the chart from left to right. The first bar is personal income. The outlined block is the part that goes to the government in taxes. The small dark block is what comes back as transfers. The last bar is the income that is free to be spent or saved.
Which Figures to Enter
| Item | Enter as |
|---|---|
| Wages and salaries | Income |
| Business and rental income | Income |
| Interest and dividends | Income |
| Income and payroll taxes | Taxes |
| State pension | Transfers |
| Unemployment or child benefit | Transfers |
| Rent, food and bills | Leave out |
| Sales tax or VAT | Leave out |
Use the same period for all three figures: a month, a quarter or a year. Living costs are not taken off, because disposable income is measured before any spending.
Using official statistics? Some agencies, including the U.S. Bureau of Economic Analysis, publish a personal income figure that already includes transfer receipts. With that kind of figure, enter personal income and personal current taxes and leave the transfers field blank, so that transfers are not counted twice.
Disposable Income Examples
A worker with no benefits. A salary of 72,000 with 15,840 of tax and no transfers:
= 56,160
The average tax rate is 22% and 78% of the salary is kept.
A retiree. Private income of 18,000, taxes of 1,800 and a state pension of 14,400:
= 30,600
Transfers are larger than taxes, so net taxes are −12,600 and disposable income is higher than personal income.
A whole economy. Using round, made-up figures in billions, personal income (transfers included) of 25,000 and personal taxes of 3,000, with the transfers field left blank:
= 22,000
How Taxes and Transfers Move Disposable Income
Because the formula only adds and subtracts, every unit of tax lowers disposable income by one unit and every unit of transfers raises it by one unit. Starting from the main example:
| Change | DPI |
|---|---|
| Starting point | 45,000 |
| Taxes up by 2,000 | 43,000 |
| Transfers up by 2,000 | 47,000 |
This is how fiscal policy reaches households. A tax cut or a rise in benefits lifts disposable income without any change in what people earn, and a tax rise or a benefit cut does the opposite.
Disposable vs Discretionary Income
The two are often mixed up, but they stop at different points.
- Disposable income: income after taxes and transfers, before any spending.
- Discretionary income: disposable income minus necessities such as housing, food, utilities and transport.
If the household above has a disposable income of 45,000 and spends 30,000 on necessities, its discretionary income is 45,000 − 30,000 = 15,000. This calculator gives the first figure, not the second.
Spending, Saving and the Saving Rate
Every unit of disposable income is either spent or saved:
Saving rate = saving ÷ DPI × 100
A household with a disposable income of 45,000 that spends 40,500 saves 4,500, a saving rate of 10%. Economists also track how much of each extra unit of disposable income is spent. That fraction is the marginal propensity to consume, and it is the reason a change in taxes or transfers feeds through to consumer spending.
What the Result Leaves Out
- Prices. The result is in current money. To compare years, adjust it for inflation to get real disposable income.
- Household size. Divide by the number of people for a per-person figure.
- Indirect taxes. Sales tax and VAT are paid when money is spent, so they are not deducted here.
- Definitions. Countries and agencies draw the line between income, taxes and transfers in slightly different places.
The result is for education and planning and is not tax or financial advice.
Key Terms
- Personal income
- Income received from work, business, property and investments, before tax.
- Disposable income
- Personal income minus taxes plus transfers.
- Transfer payment
- Money paid by the government with no good or service given in return.
- Net taxes
- Taxes paid minus transfers received.
- Discretionary income
- Disposable income minus spending on necessities.
- Saving rate
- Saving as a percentage of disposable income.
How to Use the Disposable Income Calculator
- Enter personal income. Type the income before tax for the period, such as 50,000.
- Enter taxes. Type the taxes paid to the government in the same period, such as 10,000.
- Enter transfers, if any. Type the benefits and pensions received from the government, such as 5,000. Leave the field blank if there are none.
- Read and copy the result. Disposable income appears as you type, with the working, net taxes, the average tax rate and a bar showing how much is kept. Press Copy to copy it, or Clear or Esc to start again.
Example: an income of 72,000 with taxes of 15,840 and no transfers gives a disposable income of 56,160.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate disposable income?
Start with personal income, subtract the taxes paid to the government and add any government transfers received. What is left is disposable income.
What is the disposable income formula?
Disposable income = personal income − taxes + transfers. It can also be written as personal income − net taxes, where net taxes are taxes minus transfers.
What is the disposable income on 50,000 with 10,000 of taxes and 5,000 of transfers?
It is 45,000, because 50,000 − 10,000 + 5,000 = 45,000. Net taxes are 5,000 and 90% of the income is kept.
What counts as a government transfer?
Payments from the government that are not made in return for a good or service, such as state pensions, unemployment benefits, child benefits and other welfare payments.
What is the difference between disposable and discretionary income?
Disposable income is income after taxes and transfers. Discretionary income goes one step further and also takes off necessities such as housing, food and utilities.
Is disposable income the same as take-home pay?
They are close but not identical. Take-home pay is one pay packet after payroll deductions. Disposable income covers all income sources, all direct taxes and any transfers received.
Can disposable income be higher than personal income?
Yes. When the transfers received are larger than the taxes paid, net taxes are negative and disposable income ends up above personal income.
Should I leave the transfers field blank?
Leave it blank if no transfers are received, or if the income figure you are using already includes them, as some official personal income statistics do.
Is the Disposable Income Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- Wikipedia. Disposable income.
- U.S. Bureau of Economic Analysis. Disposable Personal Income.
- U.S. Bureau of Economic Analysis. Glossary: Personal income.
- Corporate Finance Institute. Disposable Income.
- WallStreetMojo. Disposable Income (DPI).
- Wikipedia. Transfer payment.
- Wikipedia. Marginal propensity to consume.
Try our Disposable Income Calculator to see what is left after taxes and transfers in a couple of seconds.