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What Is Earned Income?

4 min read

Last Updated: January 29, 2026

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Key Takeaways

Earned income includes all the money you earn from working for another company, yourself, or a business you own.
Investments, rental payments, alimony, and other passive income sources generally don’t count towards earned income.
Certain low to moderate-income workers may qualify for the Earned Income Tax Credit (EITC), which could reduce the amount of income taxes they owe.

Your household income may come from various sources, like your paychecks, child support, or a family gift. While those different income sources may help you reach the same financial goals, the Internal Revenue Service (IRS) categorizes them differently. Even if you’re self-employed, the IRS categorizes money you earn from working, as earned income after expenses.

The differences between income types may seem confusing at first. However, understanding earned income could help you manage your income taxes and identify credits.

Earned income definition

Earned income includes many types of pay. Unlike gross income, earned income generally excludes passive income, like investments and rental payments from tenants.

Taxable income you receive from most kinds of job counts toward your earned income. Credit card rewards don’t generally count toward your income, though they may help your budget.

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The IRS explains that earned income includes money you receive from your job, self-employment, freelancing, or your small business. A salary, gig pay, or net business or farm income qualifies.

The following sources of money typically count toward earned income:

Wages
Salaries
Tips
Bonuses
Commissions
Union strike benefits
Self-employment income
Certain disability benefits you got before you were the minimum retirement age

What is unearned income?

Unearned income includes money you receive through a source outside of work. Some examples of unearned income include:

Child support payments
Alimony payments
Social Security benefits
Unemployment benefits
Pay for work while incarcerated
Interest and dividends from stock
Pensions or annuities

How to calculate earned income

As earned income is “the taxable income and wages you get from working for someone else, yourself or from a business or farm you own,” according to the IRS, you calculate it by adding up your taxable income and wages for the year. The IRS also provides a tool for calculating your earned income as you file your taxes.

Did you know?

Your income is one of the factors credit card issuers consider when determining if you qualify for a credit card, usually along with your credit history. You may want to keep these considerations in mind when applying for a new credit card.

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What is the earned income tax credit?

The earned income tax credit (EITC) is a refundable federal income tax credit to help working families with low or moderate earned income, according to the IRS. It may help you reduce your tax bill or even get you a tax refund. If you believe you qualify for the EITC, you can claim it on your tax return.

How do you qualify for the earned income tax credit?

American citizens with low-to-moderate income may benefit from the federal EITC. According to the IRS, to qualify for the EITC, you need a valid Social Security number (an individual taxpayer identification number isn’t accepted). Your filing status, children, income level, and investments affect your eligibility.

Both single and married workers may qualify for the EITC benefit. However, the way they file their taxes matters. To qualify, you must file as single, head of household, qualifying widow or widower with dependent child, or married filing jointly. A qualifying child or children in your care may increase your credit, according to the IRS.

The federal EITC income limits may change each tax year and depend on your individual household. Investments don’t automatically disqualify you, but there is a maximum amount of annual investment income you can claim each tax year.

While these guidelines may offer you an idea of your eligibility, every situation is different. For more information on the earned income credit, check the IRS guidelines or speak with a tax professional.