Earned Income
Definition
Income received from active work or self-employment, as opposed to passive or investment income. It includes wages, salaries, tips, bonuses, commissions, and net self-employment income. Earned income is important because it determines eligibility for the Earned Income Tax Credit, IRA contributions, and the Child and Dependent Care Credit. It does not include interest, dividends, capital gains, pensions, Social Security benefits, or rental income.
Example
You earn $50,000 from your job and $5,000 from a side business. Your total earned income is $55,000. The $2,000 you received in stock dividends is not earned income.
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