Apr 9, 2025
Unearned income is money you get without actually toiling for it or providing services. Unlike earned income, which is payment for work, unearned income originates from investments or other passive sources. The IRS categorizes the following as unearned income:
- Interest: Income from savings accounts, bonds, and other interest-generating accounts.
- Dividends: Payments from stocks or mutual funds.
- Capital Gains: Profits from selling property, stocks, or other investments at a greater price than bought.
- Income from Rent: Funds collected from renters for property you control.
- Social Security Benefits: Depending on situation, some or all may be undeserved.
- Pensions and Annuities: Payments connected to retirement not linked to present work.
- Unemployment Compensation: Benefits gotten while you are out of work.
- Alimony: If obtained under particular divorce settlements, notably before 2019.
- Royalty Income: Income from intellectual property, oil rights, or published works.
- Inheritances and Gifts: Usually not taxable, but are seen as unearned.
Because it’s not subject to payroll taxes, unearned income doesn’t qualify you for some tax benefits like the Earned Income Tax Credit (EITC). Still, it has an influence on your total taxable income and can raise your tax bill.
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