What is Earned Income?

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Earned income

Earned income is the money you receive from working or from specific disability payments. As opposed to unearned income, it comes from active sources like wages, salary, bonuses, and commissions. It basically includes all the proceeds of employment with the exclusion of pensions, annuities, and other worker’s compensation benefits. Earned income also includes severance pay, vacation pay, and sick live provided that there are based on accumulated leave time.

Earned income is subject to tax and may be also used in determining the Social Security limits of a person’s benefits. Some examples of earned income that are taxable are long-term disability benefits which are received by the employee before retirement, union strike benefits, and net earnings from a self-owned business.

Couples in United States with low to moderate income are subject to Earned Income Tax Credit (EITC), a refundable tax credit given when the tax liability is lesser than the withholding tax. It is established to help ease the social security burden of low-earning families. Sometimes, people overlook tax credits as ordinary credits because many families would earn more than what they had paid in. The earned income tax credit basically varies in every state. More commonly, couples would fill up a form indicating that they are married and disclosing the number of children they have in the family. The form is filed to the Internal Revenue Service (IRS).

Earned income plays a significant role in the funding sector such as in primary care facilities, hospitals, schools, and non-profit retirement communities. With this, earned income is one of the factors used to determine the growth of a certain country. Through income disparities, it would be easy for economists to determine the gap between high-income and low-income families. The larger number of the work force, the higher financial sustainability there is for the economy.

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