Federal Poverty Level

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21 Aug, 2024

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The federal poverty level (FPL) is an indicator that determines whether an individual's income is low enough to fall below the poverty level and whether they are eligible for certain government programs and benefits that reduce poverty.

Every January, the U.S. Department of Health and Human Services (DHHS) issues the following year's poverty level based on the minimum income that a family must earn to ensure the necessities of life, such as food, shelter, utilities, clothing, transportation, and other needs.

What Is The Federal Poverty Level (FPL)?

The federal poverty level (FPL) is an economic measure to determine whether an individual's income is low enough to qualify for certain government benefits and programs.
In the U.S., the Department of Health and Human Services (DHHS) issues the FPL list in January for all 48 states and separately for Hawaii and Alaska.
This indicator considers income and household size to establish the minimum income threshold.
Various federal and state programs and welfare benefits, such as Medicaid, CHIP, and housing vouchers, are available to eligible individuals based on their income level.

Federal Poverty Level Explained

The federal poverty level (FPL) groups people based on their income and household size to provide statistics of people living in poverty and then allow them certain federal subsidies and benefits under welfare programs funded by federal and state authorities. Every country has a level of poverty in it, and every country has its measures to fight it.

In the U.S., the federal government issues a certain minimum amount of income as a criterion for people; if they are earning above the income level, they are not living under weak and poor conditions, and contrary to that, earning below the set income will be eligible for benefits from state and federal government funded programs and other subsidies.

The Department of Health and Human Services adjusts the Federal Poverty Level (FPL) annually to account for changing market conditions, inflation, and other economic factors. The typical benefits the U.S. government offers cover healthcare, shelter homes, food stamps and insurance programs. These programs may have different names in different states, and additional regulations and support are offered to people depending on their needs and scenarios.

Apart from income, the agencies track income before and after tax and look for a family's annual consumption and total wealth. The U.S. government does not set a maximum Federal Poverty Level (FPL), as the threshold varies based on household size and income. In essence, the FPL portrays a country's poverty and provides statistics on poverty-stricken conditions.

Guidelines

The following table explains the U.S. Federal Poverty Guidelines for 2024 to determine financial eligibility for certain programs:

Examples

Let us look into a few examples of federal poverty level:

Example #1

Suppose a married couple, Jack and Janice, live in the U.S.; they form an example of a household of two persons with no kids. Imagine that in 2023, the federal poverty level for a household of two people is $19,720. The couple together was making an annual income of $14,490. According to this, they fell below the poverty line and hence were eligible for U.S. government assistance programs and other benefits.

Again, in 2024, the authorized entity issued a new U.S. federal poverty level of $ 20,440. They both took new jobs in the new year and now their annual income will be $23,540. Hence, Jack and Janice are not eligible for the U.S. programs and benefits offered by the federal government.

It is a simple example of the federal poverty level. However, other factors are considered when a person or household applies for U.S. welfare benefits and other programs.

Example #2

Suppose Big Leap is the largest city-based guaranteed income pilot in the U.S., in Los Angeles. It provides unconditional monthly cash transfer payments of $1,000 to low-income residents or eligible applicants. It will be for 12 months, starting in 2022. Eligible applicants must be 18 or older, have at least one dependent child, demonstrate COVID-related hardship, and have income below the federal poverty level.

Benefits

The benefits available for individuals unable to adequately support their basic needs are the following:

Supplemental Nutrition Assistance Program (SNAP): This is a welfare program with the sole objective of providing food for needy people, commonly called food stamps. Over 41 million U.S. citizens bought food under the SNAP program in 2022.
Medicaid: This program is administered by federal and state authorities. It offers health coverage to low-income adults, pregnant women, children, and elderly U.S. citizens, including those with disabilities.
National School Lunch Program: The National School Lunch Program (NSLP) provides low-cost meals and free lunches to children. These are mostly observed and administered in nonprofit private and public schools and residential childcare institutions.
Children's Health Insurance Program: This welfare program is an alternative to Medicaid. It offers low-cost health coverage to children belonging to households that earn above the qualifying criteria of Medicaid and are, hence, not eligible for it.

Federal Poverty Level vs Poverty Threshold

Below are the main differences between the two:

The FPL is an economic measure to determine an individual's eligibility for necessities. While the poverty threshold is the income level below which an individual or family is considered poor.
The FPL is calculated based on an individual's household size and income. At the same time, the poverty threshold is based on the total cost of one year's necessities for an average adult.
The FPL groups individuals into brackets or categories based on income. The poverty threshold is the specific income level to estimate an individual's poverty status.

Frequently Asked Questions (FAQs)

1. What is the relevance of the federal poverty level?

The federal poverty level (FPL) is relevant because it helps determine who might be eligible for government programs to reduce poverty. It sets a level to identify individuals or families who are considered to be living in poverty and might need help with things like healthcare, food, or housing. The FPL guides policymakers in designing programs to assist those in need.

2. What are the assumptions of the federal poverty level?

The FPL calculation assumes specific things or scenarios. For instance, it is based on certain assumptions about the cost of living and what constitutes necessities. It assumes that families spend around one-third of their income on food, and this calculation is adjusted for inflation annually.

3. What is FPL vs. FPG?

The federal poverty level (FPL) and the federal poverty guidelines (FPG) are often used interchangeably, but they have different meanings. The FPL is a specific income threshold to determine eligibility for various government assistance programs. In contrast, the FPG is a set of income guidelines. It is used for administrative purposes, such as calculating premium subsidies for health insurance under the Affordable Care Act.