Earned income is money you receive for working, either as an employee or through self‑employment.
It generally includes pay you receive for services you perform.
Examples of Earned Income
These types of income count as earned income:
- Wages and salaries (reported on Form W‑2)
- Tips and commissions
- Bonuses
- Net self‑employment income (reported on Schedule C)
- Union strike benefits
- Certain disability benefits received before retirement age
Not Earned Income
These types of income do NOT count as earned income:
- Interest and dividends
- Retirement income, such as:
- Pensions
- Social Security received after retirement age
- Unemployment benefits
- Alimony (for divorces finalized after 2018)
- Child support
- Rental income, unless you are actively providing services (for example, operating it like a business)
Why It Matters
Earned income is used to determine eligibility and limits for:
- Earned Income Tax Credit (EITC)
- Child Tax Credit
- Retirement contributions (such as IRA contribution limits)
- Filing requirements for dependents
Example
Scenario:
Christina earns $35,000 from her job and $2,000 in interest from savings.
- Earned income: $35,000
- Unearned income: $2,000
Only the $35,000 counts for:
- EITC eligibility
- IRA contribution limits