You work hard for your money, so it makes perfect sense that the tax code describes your pay as earned income.
But the IRS also taxes other money you make in ways not associated with your labor. This is known as unearned income.
The differentiation is important. The type of income could determine the tax rate you pay, whether you can claim certain tax breaks or, in some cases, whether you must file a return at all.
As the name indicates, earned income is any compensation in return for your labor. This includes wages, salaries, and self-employment earnings. Tips, bonuses, commissions, and some fringe benefits fall into this category. It doesn’t matter whether the earnings are from a full-time ...