Earned Income

Personal Finance

Earned income is money you receive in exchange for active work — W-2 wages, salaries, tips, self-employment income, and union strike pay. It's distinguished from unearned income (interest, dividends, capital gains, rental income), which has different tax treatment. Only earned income qualifies for Earned Income Tax Credit (EITC), IRA contributions, and Social Security/Medicare taxes. Most W-2 workers think of 'income' as just earned income, but building wealth requires growing both earned and unearned streams. Eventually, unearned income should be large enough to fund your life — that's the definition of financial independence.