Earned Income

Definition

Earned Income is defined as money received as pay for work performed, including but not limited to wages, salaries, bonuses, commissions, tips, and net earnings from self-employment. It can also include long-term disability payments, union strike benefits, and certain payments from deferred retirement compensation arrangements.

Key Points:

• Earned income comes from jobs or self-employment. 💼
• It may comprise wages, salaries, tips, bonuses, and commissions. 💰
• Investments and government benefits are not included as earned income. ❌
• Earned income is taxed differently from unearned income (which is like a passive jog through a money garden, while earned income is a sprint on the work treadmill). 🏃‍♂️
• Lower-income employed taxpayers may be eligible for an Earned Income Tax Credit (EITC). 🌟

Comparison: Earned Income vs Unearned Income

Examples

• Wages: If you work at a coffee shop and get paid per hour, that’s earned income! ☕️
• Bonuses: When your employer rewards you with a shiny bonus for acing a project, cha-ching—earned income! 🏆
• Self-Employment Income: If you start a business selling custom-made ties, the profit you make is earned income. 👔

Related Terms

• Passive Income: Earnings from investments or side hustles that don’t require active work. Think of it as earning money while taking a nap! 😴
• EITC (Earned Income Tax Credit): A tax credit for low- to moderate-income working individuals, essentially a little IRS love hug. 💕
• Salary: A regular payment given to employees, usually monthly or biweekly. No, you cannot use it to buy a pet llama! 🦙

    graph LR
	    A[Earnings] --> B[Earned Income]
	    A --> C[Unearned Income]
	    B --> D[Wages]
	    B --> E[Bonuses]
	    B --> F[Commissions]
	    C --> G[Interest]
	    C --> H[Dividends]

Fun Facts and Quotes

• “The only thing better than earned income is earned income not spent!” - Prof. Wallet Whiz. 😄
• Did you know? The EITC was designed to reduce poverty and incentivize work. It’s like giving a double-jump boost in the game of life! 🎮
• According to the IRS, around 20% of eligible taxpayers do not claim the EITC. That’s like leaving the free snacks at a party untouched! 🥳

Frequently Asked Questions

Q1: Is overtime pay considered earned income?
Yes, indeed! Overtime pay is money received for working extra hours. More money, more fun! 💵

Q2: Can I include side hustle income as earned income?
Absolutely! If you’re running a side gig, those earnings count as earned income. Keep hustling! 🥳

Q3: Are unemployment benefits considered earned income?
Nope! Unemployment benefits are classified as unearned income. Think of it as a financial lifebuoy, not a payday! ⛵️

Recommended Books for Further Study

• “The Total Money Makeover” by Dave Ramsey - A financial health guide that covers income types.
• “Rich Dad Poor Dad” by Robert Kiyosaki - Offers insight into different types of income and financial literacy.
• Online Resources: Investopedia, IRS

Test Your Knowledge: Earned Income Quiz

Thanks for learning about Earned Income! Remember, whether you’re earning it or enjoying it, don’t forget to smile! 😄 Keep hustling and stay financially savvy!