Does Gross Annual Income Include Spouse?

Gross annual income is an individual’s total earnings before any taxes or other deductions are withheld. It includes wages, salaries, tips, bonuses, self-employment profits, interest from bank accounts, dividends from stock investments, capital gains from the sale of assets, rental property income, and certain pension distributions.

When Spousal Income is Included

Whether to include a spouse’s income depends on the financial context. For federal tax purposes, the decision hinges on your filing status. If you choose “Married Filing Jointly,” you and your spouse combine all respective incomes, deductions, and credits onto a single Form 1040 tax return. This creates a unified household income. The “Married Filing Separately” status requires each spouse to file their own return, reporting only their individual income and deductions.

When applying for loans, particularly mortgages, lenders are concerned with your household’s total ability to manage debt. Lenders require the combined gross income of both spouses to calculate a debt-to-income ratio, which measures your capacity to make monthly payments. Including a spouse’s income on the standard mortgage application makes them a co-borrower, sharing equal responsibility for the debt.

Eligibility for many government assistance programs and financial aid is determined by household income, which necessitates including spousal earnings. The Free Application for Federal Student Aid (FAFSA), for example, requires an independent student to report their spouse’s income and assets. This combined income is used to calculate the Student Aid Index (SAI), which determines eligibility for grants, work-study, and federal loans. Programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP) also use a household income metric to assess qualification.

The Role of Community Property States

In community property states, most income earned and assets acquired by either spouse during the marriage are legally considered joint property. This means that regardless of whose name is on the paycheck, the money is owned equally by both partners. This principle applies to earnings, assets bought with those earnings, and debts incurred during the marriage.

Community property states include:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

This legal framework has implications for tax filing. Even if a couple in a community property state chooses the “Married Filing Separately” status, they must allocate half of the total combined community income to each spouse’s separate return. The IRS requires the attachment of Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States, to show how the income was divided.

The concept of community property extends beyond taxes. For instance, a debt taken on by one spouse during the marriage may be considered a community debt, making both spouses legally responsible for its repayment. This is because the debt was incurred against the community’s combined assets and earning power.

Calculating Combined Gross Annual Income

To determine a combined gross annual income, each spouse must gather all documentation that details their pre-tax earnings for the year. This includes Form W-2 for wages and salaries and various Form 1099s for other income, such as from self-employment or dividends.

First, add all of one spouse’s income sources to find their individual gross income, ensuring the calculation is based on gross figures, not the net amount deposited into a bank account. Repeat this process for the other spouse. The final step is to add the two individual totals together.

For example, if Spouse A has a salary of $70,000 and $1,500 in dividend income, their gross income is $71,500. If Spouse B has $55,000 in self-employment earnings and $500 in interest, their gross income is $55,500. The combined gross annual income for the household would be $127,000.