This report examines how income distributions change when the definition of income is varied to reflect the inclusion or exclusion of different components. The measure of household income reported in the publication Income, Poverty, and Health Insurance Coverage in the United States: 2005 (P60-231) uses the pretax, money income concept. Money income in this instance includes cash income before taxes are paid.

The government provides resources to households through cash and noncash transfer programs. These programs maybe open to all or limited to those with incomes below set amounts. Holding other income components constant, transfers from the Social Security Administration, Veterans Administration, and state governments increase household income. Payroll, state, and federal tax liabilities reduce household income. Certain tax credits, such as the Earned Income Tax Credit and the Additional Child Tax Credit, are refundable and may increase household income.

This report also includes imputed resource measures not directly related to government programs. Imputed realized capital gains and rental income on owner-occupied homes increase household income; imputed realized capital losses and work expenses decrease household income. The net impact of positive transfers (government programs, realized capital gains, and imputed rent estimates) and negative transfers (tax liabilities, realized capital losses, and work expenses) varies at a household level.