Earned income represents the taxable income earned from paid employment, business ownership, or from disability payments. In essence, this is payment for labor or services rendered.
Explanation :
In general, earned income includes wages, salaries, and/or tips, union strike benefits, long-term disability benefits received prior to retirement age, and net earnings from employment as a business owner or a statutory employee. On the contrary, earned income does not include dividends from investment, interest earned on a bank account, social security, retirement income, unemployment benefits and child support/alimony. Eligible beneficiaries can choose if they want their non taxable earned income to appear on their Wage and Tax Statement W-2 Form, depending on whether including the earned income increases or decreases their Earned Income Tax Credit (EITC).
In a nutshell :
- 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 often taxed differently from unearned income.
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