Earned income is the total taxable wages and income you receive from working. In some cases, earned income also includes disability payments and union strike benefits! But to keep things simple, it can be considered money, or income, that you "work" for.
What are examples of Earned Income?
The following are considered Earned Income:
- Wages, salaries, tips, commissions, bonuses, and any other taxable employee pay
- Long-term disability benefits if they are received before the minimum retirement age
- Net income from self-employment if you own/operate a business
- Net income from self-employment if you own/operate a farm
- Net income from self-employment if you are a member of the clergy
- Net income from self-employment as a statutory employee
What are examples that are not Earned Income?
The following are examples of income that are NOT considered Earned Income:
- Rents
- Interest and Dividends
- Social Security Benefits
- Alimony
- Child Support
- Unemployment
- Royalties
- Retirement income such as pensions and IRAs.
The distinction between Earned Income and Passive Income is important as there a varying tax implications for each.
For information on the Earned Income Credit, click here.