Law Dictionary

earned income

noun
Updated on: 26 Jul 2017

Legal Definition of earned income

  1. :  income (as wages, salary, professional fees, or commissions) that results from the personal labor or services of an individual — compare unearned income


Financial Definition of EARNED INCOME

earned income

What It Is

Earned income is an IRS term for income that is obtained by participating in a business or trade. Earned income typically includes salaries and bonuses, wages, commissions and tips. Union strike benefits are also considered earned income, as are long-term disability benefits received prior to minimum retirement age.

How It Works

Let's assume John Doe works in the marketing department for Company XYZ. His salary is $75,000 per year, and this year he also received a $5,000 bonus. His earned income is $75,000 + $5,000 = $80,000.

Let's assume John Doe quits that job and becomes a server at ABC Restaurant. He makes $9 an hour plus tips. Last year, he earned $30,000 in hourly wages and $11,000 in tips. John's earned income is $30,000 + $11,000 = $41,000.

Why It Matters

Earned income is different from unearned income, which generally includes interest, dividends and similar proceeds. Pensions, social security, unemployment benefits, alimony and child support are also not considered earned income.


Learn More about earned income


Seen and Heard

What made you want to look up earned income? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!