Is Median Income Gross or Net for the Means Test?

For the bankruptcy means test, median income is compared against your gross income, not your net or take-home pay. The figure the court actually uses is called Current Monthly Income, and it captures almost everything you receive before taxes, health insurance, retirement contributions, and other paycheck deductions come out.¹ Those deductions can matter later in the test, but only after your gross number is measured against your state’s median.

Current Monthly Income Is a Gross Figure

The Bankruptcy Code calls the relevant income Current Monthly Income, or CMI. It is the monthly average of all money you received during a defined look-back period, whether or not the money is taxable, plus your spouse’s income if you file a joint case, plus regular contributions from anyone helping pay your household bills.¹

Because CMI starts from a gross number, nothing is subtracted at this stage for federal and state income tax withholding, Social Security and Medicare, health insurance premiums, 401(k) contributions, or union dues. You report CMI on Official Form 122A-1, and the court compares the annualized total to the median income for a household of your size in your state.²

What Counts Toward Your Gross Income

Form 122A-1 walks through the categories line by line, and the court expects every applicable one to be included:³

Gross wages, salary, tips, bonuses, overtime, and commissions, reported before payroll deductions.
Alimony and maintenance you receive from a former spouse.
Regular contributions to your household from anyone helping with expenses, including a live-in partner, roommates, parents, or adult children. Child support you receive is reported here too.
Business income if you are self-employed, calculated as gross receipts minus ordinary and necessary operating expenses. The form has separate lines for the gross and the expenses.
Rental income, calculated the same way: gross rents minus ordinary operating costs.
Interest, dividends, and royalties.
Unemployment compensation, generally included, though some courts have treated it as excluded when the benefits arise under the Social Security Act.
Pension and retirement income, unless the payments come from a military disability or combat-related source.

Household contributions deserve particular attention. The U.S. Trustee Program has clarified that these include payments made directly to your creditors on your behalf, such as a parent paying your car loan or a partner covering your rent. A written agreement is not required. If the contributions happen regularly, they count toward your CMI.⁴

Self-employment and rental income are the exception to the “report it gross” rule. Form 122A-1 specifically asks you to subtract ordinary operating expenses before entering the figure, so business overhead is not treated as personal income.³ A freelancer who collects $8,000 a month from clients and spends $3,000 on supplies, software, and subcontractors reports $5,000.

Married Filers Whose Spouse Isn’t Filing

If you are married and filing alone, your non-filing spouse’s income still gets added to your CMI on Form 122A-1. A separate step on Form 122A-2, called the marital adjustment, lets you subtract the portion of your spouse’s income that does not go toward shared household expenses, such as your spouse’s own tax liability or support payments your spouse makes to someone outside your household.⁵ The adjustment keeps a non-filing spouse’s personal obligations from inflating your reported income.

Income That Is Not Counted at All

Some categories are carved out of CMI entirely. You do not report them on the means test, and they cannot push you above the state median.

Social Security benefits of every kind are excluded. Retirement, survivor, SSDI, and SSI payments all fall under this exclusion. A retiree whose only income is a $2,400 monthly Social Security check has a CMI of zero for means test purposes.¹
Military disability pay, combat-related injury compensation, and survivor benefits paid under military pay statutes are excluded. If you receive retired pay under the military disability retirement system, only the amount exceeding what you would have received under standard retirement qualifies for exclusion.³
Payments to victims of war crimes, crimes against humanity, and international or domestic terrorism are excluded.¹

The Six-Month Average

CMI is not what you earned last month. It is the average of your gross income over the six full calendar months immediately before the month you file. File in July, and the look-back covers January through June. The month you actually file does not count.¹

Averaging smooths out short-term swings. Three months at $5,000 and three months at $2,500 produces a CMI of $3,750. Because the window is mechanical, timing can matter. Someone who recently lost a high-paying job may want to wait so the lower-income months replace the higher-income months in the average. Someone who just started a better-paying job may want to file sooner, before those paychecks shift the average upward. This is a routine planning consideration, and it is one of the most common reasons an attorney will suggest waiting to file.

Comparing the Gross Number to the State Median

Once you have your average CMI, you multiply it by 12 to annualize it. That annualized figure is compared to the median income for your state and household size, which the U.S. Trustee Program publishes in a table formatted for the bankruptcy forms.⁶ The medians vary widely by state. In Alabama, for example, the current median for a one-person household is $62,672 and for a four-person household is $104,003, with $11,100 added for each additional person.

If your annualized income is at or below the median, you pass the first part of the test automatically, and creditors generally cannot challenge your Chapter 7 filing as abusive. If your annualized income exceeds the median, the inquiry continues into the second part of the test.²

What Counts as Your Household

The Bankruptcy Code does not define household size, and courts take different approaches. Some count everyone living under your roof. Some count only people you claim as dependents on your tax return. Others use an “economic unit” approach, counting anyone who meaningfully participates in household finances. Because the method shifts the median threshold, checking local practice in your district matters when your household situation is not straightforward.

When Deductions Finally Come In

If your gross-based CMI puts you above the median, you move to Form 122A-2, where allowed expenses are subtracted from your income to calculate monthly disposable income. This is where taxes, mandatory payroll deductions, health insurance costs, and standardized IRS allowances for living expenses finally reduce the number.⁵ Voluntary 401(k) contributions still do not count. The result determines whether a presumption of abuse applies under 11 U.S.C. 707.⁷

The sequence is what matters for the gross-versus-net question: the comparison to the state median is always made on the gross figure. Net-style adjustments only appear afterward, and only for filers who are above the median.

When the Means Test Doesn’t Apply

One boundary is worth knowing. The means test only applies when your debts are primarily consumer debts, meaning debts incurred for personal, family, or household purposes.⁷ If more than half your debt comes from business activities, failed investments, or similar non-consumer sources, you do not take the means test at all. Gross income and the state median become irrelevant to your Chapter 7 eligibility. Common examples of non-consumer debt include personal guarantees on business loans, credit card balances run up for business expenses, and mortgages on investment property. Some courts also classify income tax debt as non-consumer.

1
Office of the Law Revision Counsel. 11 U.S.C. 101 – Definitions
2
United States Courts. Chapter 7 – Bankruptcy Basics
3
United States Courts. Chapter 7 Statement of Your Current Monthly Income – Official Form 122A-1
4
Department of Justice. Chapter 7 Line by Line Means Test Analysis
5
United States Courts. Chapter 7 Means Test Calculation – Official Form 122A-2
6
U.S. Trustee Program/Dept. of Justice. Census Bureau Median Family Income By Family Size
7
Office of the Law Revision Counsel. 11 U.S.C. 707 – Dismissal of a Case or Conversion to a Case Under Chapter 11 or 13