Disposable Income

Disposable income is the amount of personal income an individual has after taxes. Economists often use disposable income to figure out consumer spending and saving rates. For example, someone with a $100,000 income in the 24% tax bracket has disposable income of $100,000 - $24,000 = $76,000.

Disposable income is often confused with discretionary income. Discretionary income is calculated based on disposable income. Discretionary income is net of living expenses. Using the above example, $76,000 minus $25,000 in living expenses leaves $51,000 in discretionary income. The government uses a slightly different formula to calculate disposable income for wage garnishment purposes. It subtracts health insurance premiums and involuntary retirement plan contributions from gross income.

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