Disposable Income Calculator

Disposable income is the money you have left after paying all required taxes. It represents your "take-home pay" - the actual amount available for spending, saving, and investing. ECONOMIC DEFINITION: Gross Income minus all taxes (federal, state, FICA). Does NOT subtract voluntary deductions. Used in economic indicators and government statistics. PERSONAL FINANCE DEFINITION: Often includes subtracting health insurance and retirement contributions. Represents actual cash flow available. More practical for budgeting purposes. WHY IT MATTERS: Budgeting: You can only spend what you actually have. Savings rate: Calculate true savings as % of disposable income. Debt-to-income: Lenders may use disposable income for qualifying. Lifestyle decisions: Housing, cars, and other big purchases depend on it. Financial planning: Retirement projections need accurate income data. DISPOSABLE VS DISCRETIONARY: Disposable Income: After taxes. Discretionary Income: After taxes AND necessities (housing, food, insurance). Discretionary is what's left for "wants" and extra savings. EXAMPLE: Gross: $75,000. Taxes: $17,000. Disposable: $58,000. Necessities: $35,000. Discretionary: $23,000. Understanding both helps with complete financial planning.

Several types of taxes are deducted from your gross income to arrive at disposable income. FEDERAL INCOME TAX: Progressive tax brackets (10% to 37% for 2024). Based on taxable income (after deductions). Single filers: 10% on first $11,600. 12% on $11,601-$47,150. 22% on $47,151-$100,525. 24% on $100,526-$191,950. 32%, 35%, 37% on higher amounts. Married filing jointly has wider brackets. STATE INCOME TAX: Rates vary by state (0% to 13.3%). Nine states have NO income tax: Alaska, Florida, Nevada, New Hampshire (dividends only), South Dakota, Tennessee (dividends only until 2021), Texas, Washington, Wyoming. Some states have flat rates, others progressive. SOCIAL SECURITY TAX (OASDI): 6.2% of wages (employee portion). Wage base limit: $168,600 for 2024. Maximum tax: $10,453.20. Self-employed pay both portions (12.4%). MEDICARE TAX: 1.45% of all wages (no cap). Additional 0.9% on wages over $200,000 ($250K married). Self-employed pay 2.9% (+ additional tax). LOCAL TAXES: Some cities/counties have income taxes. New York City: 3.078% - 3.876%. Philadelphia: 3.75%. Detroit: 2.4%. STATE DISABILITY INSURANCE (SDI): California, New Jersey, Rhode Island, etc. Typically 0.5% - 1% of wages.

These terms are often confused but have specific meanings in personal finance. GROSS INCOME: Total earnings before ANY deductions. Includes: salary, wages, bonuses, commissions. Also: interest, dividends, rental income, etc. This is the number on your job offer letter. Example: $80,000 annual salary = gross income. NET INCOME (Take-Home Pay): What hits your bank account. Gross minus ALL withholdings. Includes: taxes, insurance, 401(k), etc. This is your actual paycheck amount. Example: $80,000 gross - $25,000 deductions = $55,000 net. DISPOSABLE INCOME: Strictly defined: Gross minus taxes only. More practical: Often same as net income. Used in economic calculations. Example: $80,000 gross - $18,000 taxes = $62,000 disposable. DISCRETIONARY INCOME: Disposable minus essential expenses. What's left after necessities. Available for wants and extra saving. Example: $62,000 disposable - $40,000 needs = $22,000 discretionary. ADJUSTED GROSS INCOME (AGI): Tax term: Gross minus "above the line" deductions. Includes: IRA contributions, student loan interest, HSA. Used to calculate tax liability. Important for tax credit eligibility. PRACTICAL EXAMPLE ($80K salary): Gross: $80,000. AGI: $77,000 (after HSA, student loan interest). Taxable: $63,700 (after standard deduction). Disposable: $62,000. Net/Take-Home: $55,000 (after 401k, insurance). Discretionary: $22,000.

There are two main approaches: reduce taxes/deductions or increase gross income. REDUCE TAXES LEGALLY: Maximize pre-tax contributions: 401(k): Up to $23,000 (2024), $30,500 if 50+. Traditional IRA: Up to $7,000 ($8,000 if 50+). HSA: $4,150 individual, $8,300 family. Use tax credits: Child Tax Credit, Earned Income Credit. Education Credits (American Opportunity, Lifetime Learning). Dependent Care FSA: Up to $5,000. Optimize withholding: Adjust W-4 to avoid over-withholding. Getting refund = giving IRS interest-free loan. Move to lower-tax state: No income tax: TX, FL, WA, NV, etc. Lower cost of living may offset other factors. REDUCE DEDUCTIONS: Shop health insurance: Compare marketplace plans. Consider HDHP + HSA for tax savings. Evaluate 401(k) percentage: Balance retirement savings vs current needs. At minimum, get full employer match. Review other deductions: Union dues, professional subscriptions. Parking/transit benefits. INCREASE GROSS INCOME: Negotiate salary: Research market rates. Ask during reviews, not randomly. Pursue promotion: Take on additional responsibilities. Develop new skills. Side income: Freelancing, consulting. Gig economy (consider tax implications). Passive income: Dividends, rental income. May have different tax treatment. CAUTION: Don't reduce retirement contributions just for more spending money. Tax optimization is good, but long-term wealth building matters too.

Several popular budgeting frameworks can help you allocate your disposable income effectively. 50/30/20 RULE: 50% Needs: Housing, utilities, groceries, insurance, minimum debt payments. 30% Wants: Entertainment, dining out, hobbies, subscriptions, travel. 20% Savings: Emergency fund, retirement, investments, extra debt payments. Example ($5,000/month disposable): Needs: $2,500. Wants: $1,500. Savings: $1,000. 80/20 SIMPLIFIED: 80% spending (needs + wants combined). 20% savings minimum. Easier to follow, less detailed. 70/20/10 RULE: 70% expenses. 20% savings/investing. 10% giving/charity. Popular with those prioritizing generosity. ZERO-BASED BUDGETING: Every dollar has a job. Income minus expenses = $0. Forces intentional allocation. More detailed but more control. PAY YOURSELF FIRST: Automate savings immediately. Live on what's left. Removes willpower from equation. Recommended: 15-20% minimum. ENVELOPE SYSTEM: Allocate cash to categories. When envelope is empty, stop spending. Great for controlling problem categories. Can use apps for digital version. BUDGETING TIPS: Track spending first before creating budget. Review and adjust monthly. Build emergency fund (3-6 months expenses). Automate everything possible. Use budgeting apps (YNAB, Mint, etc.). Include irregular expenses (car repairs, gifts).

FICA (Federal Insurance Contributions Act) includes Social Security and Medicare taxes that fund these programs. SOCIAL SECURITY TAX: Rate: 6.2% employee, 6.2% employer (12.4% total). Wage base: $168,600 for 2024. Maximum employee tax: $10,453.20. Funds retirement, disability, survivors benefits. MEDICARE TAX: Rate: 1.45% employee, 1.45% employer (2.9% total). No wage cap - applies to all earnings. Additional Medicare Tax: 0.9% on wages over $200,000 single ($250,000 married). Only employee pays additional tax. COMBINED FICA: Total employee: 7.65% (up to SS wage base). Total employee on wages over $200K: 8.55%. Employer matches: 7.65%. Total FICA: 15.3% of wages. SELF-EMPLOYMENT TAX: Self-employed pay both portions: 15.3%. Can deduct employer-equivalent portion (7.65%). Calculated on 92.35% of self-employment income. CALCULATION EXAMPLE ($100,000 salary): Social Security: $100,000 × 6.2% = $6,200. Medicare: $100,000 × 1.45% = $1,450. Total FICA: $7,650. EXAMPLE ($250,000 salary): Social Security: $168,600 × 6.2% = $10,453.20 (capped). Medicare: $250,000 × 1.45% = $3,625. Additional Medicare: ($250,000 - $200,000) × 0.9% = $450. Total FICA: $14,528.20. WHAT YOU GET: Social Security credits (need 40 for retirement). Medicare eligibility at 65. Disability insurance coverage. Survivors benefits for family.

Pre-tax deductions reduce your taxable income, which can actually increase your take-home pay compared to the same spending with after-tax dollars. HOW PRE-TAX WORKS: Deducted before taxes are calculated. Reduces taxable income. Saves you money at your marginal tax rate. COMMON PRE-TAX DEDUCTIONS: 401(k)/403(b): Up to $23,000 (2024). Employer match doesn't count toward limit. Traditional IRA: If eligible for deduction. Health Insurance Premiums: Most employer plans are pre-tax. Reduces income for all taxes including FICA. HSA Contributions: Triple tax advantage. Pre-tax in, tax-free growth, tax-free out for medical. FSA (Flexible Spending): Healthcare FSA: Up to $3,200. Dependent Care FSA: Up to $5,000. Use-it-or-lose-it rules apply. TAX SAVINGS EXAMPLE: Income: $75,000. Without 401(k): Federal tax ~$8,500. With $10,000 401(k): Taxable income $65,000. Federal tax ~$6,300. Tax savings: $2,200. Effective cost of $10,000 contribution: $7,800. PRE-TAX VS ROTH: Pre-tax (Traditional): Tax break now. Pay taxes in retirement. Good if current rate > retirement rate. Roth: Pay taxes now. Tax-free in retirement. Good if retirement rate > current rate. INCOME PHASE-OUTS: Higher AGI affects: Roth IRA contribution eligibility. Traditional IRA deduction. Education credits. Child tax credit. Pre-tax contributions lower AGI, preserving eligibility. NET EFFECT ON PAYCHECK: $1,000 pre-tax contribution. Doesn't reduce paycheck by $1,000. Reduces by ~$750 (depending on tax bracket). You "keep" more of your money.

Nine states don't levy state income tax on wages, which can significantly increase disposable income - but it's not that simple. NO INCOME TAX STATES: Alaska: No income or sales tax. Uses oil revenue. Florida: No income tax. 6% sales tax. Nevada: No income tax. 6.85% sales tax. Casinos help fund state. New Hampshire: No tax on wages. 4% on dividends/interest (phasing out by 2025). South Dakota: No income tax. 4.5% sales tax. Tennessee: No tax on wages. 7% sales tax (highest in US). Texas: No income tax. 6.25% sales tax + local (up to 8.25%). Washington: No income tax. 6.5% sales tax. High B&O tax on businesses. Wyoming: No income or corporate tax. Uses mineral extraction revenue. ACTUAL SAVINGS EXAMPLE: $100,000 income, California → Texas: CA state tax: ~$6,000. TX state tax: $0. Savings: $6,000/year. But consider: Housing costs. Sales tax differences. Property tax (TX is higher). Overall cost of living. WHAT THESE STATES TAX INSTEAD: Higher property taxes: Texas, New Hampshire. Higher sales taxes: Tennessee, Washington. Special taxes: Nevada (gaming), Alaska (oil). Corporate taxes: Washington B&O. OTHER CONSIDERATIONS: Job availability and salaries. Quality of public services. Healthcare costs. Education quality. Weather and lifestyle. WHY IT'S COMPLICATED: CA $100K salary might be $85K in TX. Higher property taxes offset income tax savings. Sales tax hits consumption heavily. Some no-income-tax states are expensive overall. BOTTOM LINE: No income tax helps, but total cost of living matters more. Always compare complete financial picture.