Earned Income
Earned income includes all of the following types of income:
- Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below.
- Net earnings from self-employment.
- Gross income received as a statutory employee.
Nontaxable combat pay election. You can elect to include your nontaxable combat pay in earned income for the earned income credit.
Net earnings from self-employment. You may have net earnings from self-employment if:
- You own your business, or
- You are a minister or member of a religious order.
Minister's housing. The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment.
Statutory employee. You are a statutory employee if you receive a Form W-2 on which the Statutory employee box (box 13) is checked.
Strike benefits. Strike benefits paid by a union to its members are earned income.
Amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation. Amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.
Disability Benefits. If you retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income.
This information is found in Publication 596, Earned Income Credit.
FAQs
For the year you are filing, earned income includes all income from employment, but only if it is includable in gross income. Examples of earned income are: wages; salaries; tips; and other taxable employee compensation. Earned income also includes net earnings from self-employment.
What income qualifies for earned income? ›
Earned income is wages, salaries, tips, and other employee compensation that is subject to California withholding, or net income from self-employment.
What is the difference between earned income and total income? ›
Gross income is all income an individual earns during the year both as a worker and as an investor. Gross income is derived from income sources beyond those related to employment. Earned income only includes wages, commissions, bonuses, and business income minus expenses, if the person is self-employed.
How to calculate earned income? ›
This is any income from wages, salaries, tips or any other earned income that is taxable. Do not include any non-taxable benefits in this total. Also include any earnings from farms, farm partnerships or businesses that did not require payment of self-employment taxes.
What qualifies as other earned income? ›
Other Income is money or income generated from activities unrelated to business, work, or performing services. Generally, this is income not from wages, self-employment, retirement, home or property rentals, or investments; from a tax perspective, this is any income not reported on a W-2 or 1099 form.
What qualifies as unearned income? ›
Unearned Income. Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust.
What can I use as earned income? ›
That includes:
- Wages.
- Salaries.
- Tips.
- Union strike benefits.
- Long-term disability benefits received prior to minimum retirement age.
- Net earnings from self-employment.
- Gross income received as a statutory employee (an independent contractor under common law rules)
To qualify for the Earned Income Tax Credit, or EITC, you must: Be at least 25 years old, but not older than 65. If you're claiming jointly without children, only one person needs to meet the age requirement. Have worked and earned at least $1 in income (pensions and unemployment don't count), but no more than $63,398.
What are the three forms of earned income? ›
Types of Earned Income
- Wages, salary or tips where federal income taxes are withheld on Form W-2, box 1.
- Income from a job where your employer didn't withhold tax (such as gig economy work) including: ...
- Money made from self-employment, including if you: ...
- Benefits from a union strike.
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives.
Rental income is typically considered to be unearned income by the IRS. Unlike earned income, which primarily includes wages, salaries, or business income from active participation, unearned income typically includes sources such as interest, dividends, and rental income from real estate.
Does interest count as earned income? ›
Interest income is considered unearned income.
What qualifies as earned income? ›
Earned income is any income received from a job or self-employment. Earned income may include wages, salary, tips, bonuses, and commissions. Income derived from investments and government benefit programs would not be considered earned income. Earned income is taxed differently from unearned income.
How do you qualify for earned income? ›
To qualify for the EITC, you must:
- Have worked and earned income under $63,398.
- Have investment income below $11,000 in the tax year 2023.
- Have a valid Social Security number by the due date of your 2023 return (including extensions)
- Be a U.S. citizen or a resident alien all year.
- Not file Form 2555, Foreign Earned Income.
To calculate your annual gross income, you can multiply your gross pay by the number of pay periods you have in a year. To figure out your annual net income, subtract whatever is withheld in federal, state and local taxes—plus other deductions—from your gross pay.
Does Social Security count as earned income for Social Security? ›
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives.
What kind of money counts as income? ›
Taxable income includes wages, salaries, bonuses, and tips, as well as investment income and various types of unearned income.
What is classed as unearned income? ›
Unearned income is any form of income you earn passively. Examples include interest on investments, dividends, lottery or casino winnings, and rental income from investment properties. Earned income, on the other hand, is any compensation you receive for providing a service.
