In simple terms, "disposable income" is
whatever money you have left after paying all required taxes and national
insurances! Disposable income is after-tax income that is officially calculated
as the difference between personal income and personal tax and nontax payments.
In general terms, personal tax and nontax payments are about 15% of personal
income, which makes disposable personal income about 85% of personal income.
When applying for certain state, federal and private benefits
and protections, the term "disposable income" may change
slightly. For instance, when applying for loans, mortgages, credit cards and
veterans home loans, disposable income is that income left over after paying
all required taxes, national insurances and all essentials such as food,
clothing, and shelter.
Some state and federal assistance programs look at
disposable income as "any income available for spending and saving"
Generally, this means money left over after taxes and fixed costs such
as rent/mortgage, food, car payments, insurance, etc.) Disposable income is
also defined as the total income that can be used by a household for either
consumption or saving during a given period of time, usually one year.
Another way to define disposable income is that portion of an
individual's income (wages and salaries, interest and dividend payments from
financial assets, and rents and net profits from businesses as well as capital
gains on real or financial assets) over which the recipient has complete
discretion.
For the purposes of calculating whether you are entitled to
federal, state and non-profit legal help and similar services; many states will
deduct the following from your income:
a) Deduction of a certain amount depending on how many
dependent children you have,
b) Tax and National Insurance.
c) Maintenance you are paying to your wife/husband of former
wife/husband or a child or relative, (who are not members of your current
household).
d) Housing costs, for example mortgage or rent, (less any
housing benefit). This also includes council tax, water rates, insurance
premiums and other costs associated with where you live. There is a maximum
figure of £545 per month if you have no dependents. Otherwise the full
value of your housing costs can be taken into account.
e) Employment related expenses, for example travel costs.
This figure is a set of £45 per month.
f) Childminding charges, these are only deductible if you are
receiving a wage or salary and actually pay private childminding charges.
Deduction can only be made for children 15 or under, (unless they are disabled
in which case there will be no limit on age).
g) If you are in receipt of certain state benefits on top of
your income then these will be disregarded, (examples are disability living
allowance, invalid care allowance, council tax benefit, housing benefit,
payments out of the social fund etc.).
Disposable income was also known, in previous
generations, as discretionary money. The bottom line is you should always ask
how your disposable income is being figured.