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Earned Income

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Definition:

Earned income is income you receive from working, as opposed to unearned income, which comes from more passive sources, such as investment earnings. Earned income is used for many tax purposes, and for determining limits on Social Security benefits.

The IRS defines earned income:

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. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.

So, earned income is

  • Gross pay and benefits from work for an employer
  • Self-employment earnings; that is, net income from a business you own.

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