Earned Income
Earned income includes all of the following types of income:
- Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below.
- Net earnings from self-employment.
- Gross income received as a statutory employee.
Nontaxable combat pay election. You can elect to include your nontaxable combat pay in earned income for the earned income credit.
Net earnings from self-employment. You may have net earnings from self-employment if:
- You own your business, or
- You are a minister or member of a religious order.
Minister's housing. The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment.
Statutory employee. You are a statutory employee if you receive a Form W-2 on which the Statutory employee box (box 13) is checked.
Strike benefits. Strike benefits paid by a union to its members are earned income.
Amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation. Amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.
Disability Benefits. If you retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income.
This information is found in Publication 596, Earned Income Credit.
FAQs
For the year you are filing, earned income includes all income from employment, but only if it is includable in gross income. Examples of earned income are: wages; salaries; tips; and other taxable employee compensation. Earned income also includes net earnings from self-employment.
What best describes earned income? ›
Earned income includes all the taxable income and wages from working either as an employee or from running or owning a business. It also includes certain other types of taxable income. Earned income includes: Wages, salaries, tips and other taxable employee pay.
What is my earned income amount? ›
Earned income includes all the taxable income and wages you get from working for someone else, yourself or from a business or farm you own.
What disqualifies you from earned income credit? ›
You can't claim the EIC unless your investment income is $11,000 or less. If your investment income is more than $11,000, you can't claim the credit. Use Worksheet 1 in this chapter to figure your investment income.
What are three examples of earned income? ›
Earned income is any income received from a job or self-employment. Earned income may include wages, salary, tips, bonuses, and commissions. Income derived from investments and government benefit programs would not be considered earned income.
How do I know if I qualify for earned income? ›
To qualify for the EITC, you must: Have worked and earned income under $63,398. Have investment income below $11,000 in the tax year 2023. Have a valid Social Security number by the due date of your 2023 return (including extensions)
What is not counted as income? ›
Nontaxable income won't be taxed, whether or not you enter it on your tax return. The following items are deemed nontaxable by the IRS: Inheritances, gifts and bequests. Cash rebates on items you purchase from a retailer, manufacturer or dealer.
What disqualifies you from earned income credit 2024? ›
If you received more than $11,000 in investment income or income from rentals, royalties, or stock and other asset sales during 2023, you can't qualify for the EIC. This amount increases to $11,600 in 2024. You have to be 25 or older but under 65 to qualify for the EIC.
What is one example of unearned income? ›
Two examples of unearned income you might be familiar with are money you get as a gift for your birthday and a financial prize you win. Other examples of unearned income include unemployment benefits and interest on a savings account.
Is Social Security considered earned income? ›
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives. In-Kind Income is food, shelter, or both that you get for free or for less than its fair market value.
This means you are paying into the Social Security system that protects you for retirement, disability, survivors, and Medicare benefits. Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes.
Is rental income considered earned income? ›
Rental income is typically considered to be unearned income by the IRS. Unlike earned income, which primarily includes wages, salaries, or business income from active participation, unearned income typically includes sources such as interest, dividends, and rental income from real estate.
How much do I have to make to qualify for earned income credit? ›
Check if you qualify for CalEITC
CalEITC may provide you with cash back or reduce any tax you owe. To qualify for CalEITC you must meet all of the following requirements during the tax year: You're at least 18 years old or have a qualifying child. Have earned income of at least $1.00 and not more that $30,950.
How can I get earned income credit without a job? ›
You do not qualify for the Earned Income Credit (EIC) unless you have earned income and meet all the other EIC qualifications. Being unemployed, not working, and/or not meeting the filing threshold automatically disqualifies you from the EIC.
Can you get earned income credit with zero income? ›
How to qualify for the earned income credit. To qualify for the EIC, you must have made at least $1 of earned income. There are also other rules.
What is considered not earned income? ›
This type of income is known as unearned income. Two examples of unearned income you might be familiar with are money you get as a gift for your birthday and a financial prize you win. Other examples of unearned income include unemployment benefits and interest on a savings account.
What is considered earned income vs unearned income? ›
Earned income refers to the money that you make from working, including salaries, wages, tips and professional fees. Unearned income, comparatively, is the money that you receive without performing work, such as dividends, interest or rental income.
