What Does Earned Income Include?

Earned Income is any revenue you obtain from a job or personal services. It is the money you make while completing responsibilities or labor. The IRS defines earned income as wages, salaries, tips, and other kinds of compensation received in exchange for labor. Earned income consists of several major components, including:

• Wages and Salaries: Money earned through an employer-employee relationship, usually recorded on Form W-2.
• Tips and Bonuses: Money received in the form of tips, particularly for services, as well as performance-based bonuses.
• Self-Employment Income: Income earned by running your own business or doing freelance work. This is recorded on Schedule C (Form 1040).
• Commissions: Earnings derived from the sale of goods or services, usually received by salesmen and agents.
• Other Compensation: This category includes any other revenue derived from active participation in a trade or business, such as bonuses, incentives, or fees.

Earned income also includes money earned from activities such as working as an independent contractor, part-time job, or doing casual labor. However, investment income (such as dividends or interest) and retirement income (such as pensions or Social Security benefits) are not considered earned income under tax law.

Earned income is normally subject to Social Security and Medicare taxes. This type of income also impacts eligibility for some tax breaks, including the Earned Income Tax Credit (EITC).

This entry was posted on Monday, April 7th, 2025 at 9:52 pm and is filed under Income, Tax Related Questions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.