Earned income is basically the amount of money earned as a result of work. This covers taxable income, although in some cases, it is possible to have certain types of non-taxable pay recorded as earned income for Earned Income Tax Credit, or EITC. In any case, earned income may come in the form of wages received by working for another entity, or by working in a personally-owned business. For individuals from certain professions, tips received constitute part of earned income, as well. Benefits, such as those for long-term disability and those granted for union strikes, also fall under this category. Workers’ benefits that are received prior to retirement are considered earned income.
On the other hand, there are also several sources of income which do not fall under the classification of earned income. Dividend received from an investment, as well as the interest that comes along with this is not considered earned. Since unemployment benefits are received during a period in which work is not being done, it is not considered earned, either. Other sources of unearned income are child support and social security.
It is necessary to make a distinction between earned and unearned income sources because this is part of proper tax documentation. Tax forms may provide this information, and tax lawyers or accountants may give some clarification whenever necessary. To properly keep track of earned income, it may be necessary to keep one’s payslips. Making sure that personal records match those of the employer may also prove to be valuable in proving that income tax and applications for tax benefits were filed correctly.