March 26, 2015
For most quarters, our office expects to post a summary of the U.S. Bureau of Economic Analysis (BEA) estimate of California personal income. This post provides some background information on the broad income categories described in our personal income summaries.
Wages and Salaries. This is measured before deductions such as payroll taxes and employee pension contributions. Wages and salaries include commissions, tips, bonuses, gains from exercising stock options, and deferred compensation such as 401(k) contributions.
Dividends, Interest, and Rent. Nearly half of the income in this category comes from sources that do not directly give people more cash to spend: imputed rent and imputed interest. Imputed rent is the estimated amount that homeowners would have to spend to rent their own homes. The idea is that not having to pay rent effectively gives them more income. Imputed interest includes investment income earned on insurance policies, the value of implicit services provided by banks and other lenders, and interest earned on employee pension plans.
Transfer Payments. These consist mainly of government payments for which no current services are performed. Major components of transfer payments include Social Security, disability payments, Medicare and Medicaid payments, unemployment insurance benefits, and veterans’ benefits. The only private transfer payments are personal injury liability payments and corporate gifts to nonprofits.
Proprietors’ Income. This refers to the net business income from proprietorships and partnerships. Farm income typically accounts for about 5 percent of the total in California.
Employer-Paid Benefits. This includes the value of employer contributions to employee pension and insurance plans including health, life, workers’ compensation, and unemployment.
Payroll Taxes. Employees’ payroll taxes for Social Security, Medicare, and other programs are included in the estimate of wages and salaries, so they must be subtracted out later to exclude them from the estimate of total personal income.
Official definitions of all terms found in BEA state tables can be found here.