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What Is Earned Income on a Tax Form?

Definition

The IRS defines earned income as all taxable income and wages received from working, either for someone else or in a business you own. This includes wages, salaries, tips, royalties and earnings from self-employment. It also includes union strike benefits and long-term disability benefits received before minimum retirement age.

Not Included

There are some forms of income that are not considered earned. These include interest and dividends on savings and investments, pensions, social security, unemployment benefits, alimony and child support.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a federal credit meant to assist low-income households. Depending on the size of your earned income, you can receive an additional credit on your taxes. The tax credit operates on a bell curve, with the amount received by low income households growing larger from zero, until it reaches a plateau, and then drops. Households with children receive larger credits, but those without children are also eligible.

Nontaxable Combat Pay

Combat pay for U.S. service members is nontaxable and is not considered part of earned income. However, individuals may elect to have it applied to earned income for the purposes of the EITC. Because of the nature of the EITC, additional earned income can help a household reach the plateau, where the maximum credit is issued. If the addition of the combat pay would force the credit to drop, by making earned income too high, service members may elect not to add it.

Other EITC exceptions

Members of the clergy may receive certain exemptions from the EITC, depending on particular forms filled out, residences and self-employment. Disaster victims can also receive special EITC qualifications, and disability benefits after retirement age are not part of earned income.

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