If your income is above the state median, you must complete Step 2 of the means test: the disposable income calculation. This is where deductions matter. The right deductions can bring your disposable income below the abuse threshold even if your gross income is well above median.
The deductions fall into three categories: IRS standard amounts (fixed, regardless of what you spend), IRS local amounts (based on where you live), and actual expenses (what you really pay for certain categories).
IRS National Standards
These are fixed monthly allowances based on household size. You get these amounts regardless of what you actually spend. They cover food, housekeeping supplies, apparel, personal care, and miscellaneous expenses.
| Household Size | Monthly Allowance (approx.) |
|---|---|
| 1 person | $785 |
| 2 people | $1,312 |
| 3 people | $1,510 |
| 4 people | $1,697 |
| Each additional | +$187 |
These figures are updated annually by the IRS. Check the current National Standards at IRS Collection Financial Standards.
Why This Matters
You get the National Standard amount even if your actual food and clothing costs are much lower. This is a guaranteed deduction -- no receipts needed, no documentation required beyond the form itself.
IRS Local Standards -- Housing and Utilities
Housing and utility deductions are based on your county. The IRS publishes different amounts for each county in the country, reflecting actual housing costs in your area. The allowance covers:
- Mortgage or rent payments
- Property taxes (included in the standard)
- Homeowner's/renter's insurance
- Maintenance and repair
- Utilities: gas, electric, water, heating oil, trash, telephone
The housing standard is split into two parts on the form: mortgage/rent (including taxes and insurance) and utilities (everything else). You get the full standard amount for your county regardless of what you actually pay, with one exception: if you do not have a mortgage or rent payment, you only get the non-mortgage portion.
High-Cost Areas Benefit
If you live in a high-cost county (San Francisco, Manhattan, DC, etc.), your housing standard will be much higher than in a rural county. This means the means test is effectively easier to pass in expensive areas, because the deductions are larger. The IRS standard for housing in San Francisco County can be over $4,000/month, while a rural county in Mississippi might be under $1,000/month.
IRS Local Standards -- Transportation
Transportation deductions have two components:
Ownership Cost
If you have a car loan or lease, you get an ownership allowance of approximately $588/month per vehicle (up to two vehicles for a household). If you own your car free and clear -- no loan, no lease -- you do not get the ownership allowance. This is one of the few areas where having a payment actually helps on the means test.
Operating Cost
Everyone who has a vehicle gets the operating cost allowance, which covers gas, maintenance, insurance, and registration. This amount is based on your Census region (Northeast, South, Midwest, West) and ranges from approximately $224 to $298/month per vehicle.
If You Have No Vehicle
If you do not own a vehicle, you get a public transportation allowance of approximately $242/month instead of the ownership and operating cost allowances.
Actual Expense Deductions
On top of the IRS standards, you can deduct certain expenses based on what you actually pay. These are the deductions that most commonly make the difference for above-median filers.
Taxes and Mandatory Payroll Deductions
Deduct your actual withholdings for:
- Federal income tax
- State and local income tax
- Social Security tax (FICA)
- Medicare tax
- State disability insurance
- Mandatory retirement contributions (if required by employer)
- Union dues
- Uniform costs (if mandatory)
For self-employed debtors, the self-employment tax (employer-equivalent share of Social Security and Medicare) is deductible. Use your actual tax liability -- not an inflated withholding you could adjust downward.
Health Insurance and Medical Expenses
Deduct your actual health insurance premiums, whether employer-sponsored, marketplace, or private. Also deductible:
- Disability insurance premiums
- Health Savings Account (HSA) contributions
- Out-of-pocket medical expenses exceeding the IRS National Standard allowance for healthcare
Health insurance is often one of the largest actual expense deductions. If you pay $800/month for a family plan, that is $800/month off your disposable income.
Secured Debt Payments
All payments on secured debts -- mortgage, car loans, furniture financing, anything with collateral -- are deducted. The calculation is:
- Total the amount you will owe on each secured debt over the next 60 months
- Divide by 60 to get the monthly average
- This includes any arrearage cure payments (back payments you owe)
For many homeowners, the mortgage payment deduction alone is enough to pass the means test. A $2,000/month mortgage = $2,000/month deduction.
Priority Debt Payments
If you owe back taxes, past-due domestic support obligations, or other priority debts, deduct 1/60th of the total priority debt amount. This can provide a meaningful deduction for filers with significant tax debt.
Childcare and Dependent Care
Deduct the actual cost of childcare necessary for a parent to work:
- Daycare
- After-school care
- Summer programs
- Babysitting for work hours
This can be a large number. If you pay $1,500/month for daycare for two children, that entire amount is deductible. This single deduction can push many above-median filers below the threshold.
Court-Ordered Payments
Alimony and child support that you pay (not receive) are deductible in full.
Education Expenses for Dependent Children
Up to $156.25 per month per child for expenses related to attendance at a private or public elementary or secondary school. This covers tuition, uniforms, fees, and special educational needs. College tuition does not qualify.
Telecommunications
An additional allowance for phone and internet service if not already fully covered by the IRS standards. Typically around $70-100/month.
Chapter 13 Administrative Expenses
If you would need to file Chapter 13 instead of Chapter 7, you can deduct the estimated Chapter 13 trustee fee -- typically 6-10% of plan payments. This is a deduction on the Chapter 7 means test that accounts for what it would cost to administer a hypothetical Chapter 13 plan.
Deductions That People Miss
Common Missed Deductions
- Health insurance premiums -- especially for marketplace plans with high monthly costs
- Mandatory retirement contributions -- 401(k) contributions required by your employer
- Childcare -- the full actual cost, not a reduced estimate
- Secured debt including car loans -- averaged over 60 months
- Chapter 13 administrative expense -- available even on the Chapter 7 form
- Tax debts as priority claims -- 1/60th of owed back taxes
- State and local taxes -- often forgotten when only federal withholding is obvious
Many above-median filers leave deductions on the table because the form is long and certain line items are easy to skip. An experienced bankruptcy attorney will know which deductions apply to your situation and how to maximize them.
Where to Find the Current Standards
- IRS National Standards: IRS Collection Financial Standards
- IRS Local Standards (housing by county): Available on the same IRS page, with separate tables for each state
- IRS Local Standards (transportation): Available on the same IRS page, with regional figures
- U.S. Trustee means test data: justice.gov/ust/means-testing
Start with Step 1
Before diving into deductions, check whether you even need them. If your income is below the state median, you pass automatically.
Not Legal Advice
This page provides general educational information about means test deductions. Specific deduction amounts, eligibility, and calculations depend on your individual circumstances, location, and the version of the forms in effect on your filing date. Consult a licensed bankruptcy attorney.