What is Earned Income?

Earned income is an IRS term for income that is obtained by participating in a business or trade. Earned income typically includes salaries and bonuses, wages, commissions and tips. Union strike benefits are also considered earned income, as are long-term disability benefits received prior to minimum retirement age.

How Does Earned Income Work?

Let's assume John Doe works in the marketing department for Company XYZ. His salary is $75,000 per year, and this year he also received a $5,000 bonus. His earned income is $75,000 + $5,000 = $80,000.

Let's assume John Doe quits that job and becomes a server at ABC Restaurant. He makes $9 an hour plus tips. Last year, he earned $30,000 in hourly wages and $11,000 in tips. John's earned income is $30,000 + $11,000 = $41,000.

Why Does Earned Income Matter?

Earned income is different from unearned income, which generally includes interest, dividends and similar proceeds. Pensions, social security, unemployment benefits, alimony and child support are also not considered earned income.

Ask an Expert about Earned Income

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Earned Income.

Be the first to ask a question

If you have a question about Earned Income, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.