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Household

A social unit of people who live together under one roof and share resources even if they are not related to each other

What is a Household?

A household refers to a social unit of people who live together under one roof and share resources, even if they are not related to each other. In the US, the Census Bureau categorizes households as family or non-family. A family household comprises members who are related by blood, whereas a non-family household comprises people sharing a home and are not related by blood.

 

Household

 

In the United Kingdom, a household is made up of people who share accommodation and at least one meal a day. If there are several people sharing a dwelling but do not share meals or accommodation, such an arrangement is considered to be multiple households.

 

Head of Household

The head of household is a taxpayer who pays at least half of the supporting and housing costs of a qualifying person. A taxpayer who files taxes as a head of household enjoys higher deductions and lower taxes compared to a single person or a married couple filing separately.

For a person to be classified as a head of household, he/she must be considered unmarried, file tax returns separately and is entitled to an exemption for a qualifying person. A person is considered unmarried if he/she is single or divorced. A married taxpayer may also be considered single for tax purposes if they lived separately with the spouse during the previous six months.

The head of household must also meet more than half of a qualifying person’s costs. Some of the costs under consideration include food, clothing, education, and housing costs. If the qualifying person lives in a house for more than half the year, they must also meet the accompanying costs such as rental, utilities, mortgage repayments, insurance, taxes, etc.

If the qualifying person is a child, the head must be the owner of the house occupied by the qualifying person. However, if the qualifying person is a parent of the taxpayer, the home must be owned by the parents.

 

Member of Household

A member of a household is an individual who is identified as a dependent of the taxpayer when filing annual tax returns. If a taxpayer discloses that he/she has an eligible dependent(s), the person qualifies for the dependency exemption.

The member can be a relative or non-relative and must meet the requirements set by the US Internal Revenue Service. One of these requirements is that the dependent must live within the household during the tax year.

However, a relative who does not live with the taxpayer under one roof may still qualify as a member if the reason for absence is illness, attending college, fulfilling military service, business travel, vacation, or detention in a juvenile facility.

Several relationships qualify a person as a member of a household, including:

  • Brother or sister or the taxpayer. This includes stepbrothers, stepsisters, half-brothers, and half-sisters.
  • Niece, nephew, aunt, and uncle who are not related by marriage.
  • Lineal descendants of the taxpayer, such as a child, grandchildren, great-grandchildren, and stepchildren.
  • Lineal ancestor such as grandparents and great-grandparents.
  • In-laws of the taxpayer such as father-in-law, mother-in-law, brother-in-law, sister-in-law, daughter-in-law, and son-in-law.

 

Household Income

Household income is the total income of all the members of a household. The incomes considered in this case include salaries and wages from employment, retirement income, business income, investment gains and government transfers like food stamps. It differs from family income, which only takes into account those who are related by birth marriage or adoption.

Lenders such as banks and credit unions use household income as a basis for underwriting loans since the lender can assess the ability of the loanee to honor any arising obligations.

Governments also use household income as an indicator of living standards, and it can be used to compare affluence and income levels between cities, states, and countries. For example, comparing the incomes of populations of two different countries can give an idea of the country with a higher quality of life and monetary well-being.

 

Household Expenses

Household expenses represent the per-person expenses that are consumed within a home. Such expenses may comprise food and drinks expenses, cost of utilities, travel costs, educations costs, etc. The expenses are added up and divided by the number of members living under one roof.

Several expenses qualify as household expenses, including:

  • Housing costs: Rent, real estate taxes, and mortgage repayment.
  • Utility fees: Electricity, phone service, internet service, and water.
  • Healthcare costs: Cost of prescription medicine, hospital charges, and nursing home admission charges.
  • Education costs: Textbooks, stationery, purchase of school uniforms, tutoring services, tuition fees.
  • Transportation costs: Cost of buying a new car, cost of leasing a car, commuting costs to work, taxi or bus charges.
  • Leisure: Night outs, subscription television services, vacations, etc.

 

More Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Accounting for Income Taxes
  • Gross Income
  • Schedule C
  • Tax Deductible

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