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Simple English definitions for legal terms
earned income
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A quick definition of earned income:
Term: Earned Income
Definition: Earned income is money that someone earns by doing a job or providing a service. This includes things like wages, salaries, tips, and commissions. It can also include money earned from working for oneself, like from a small business. Sometimes, people who earn low incomes can get a special tax credit from the government to help them pay less in taxes. This is called the earned income tax credit.
A more thorough explanation:
Earned Income refers to the money a person receives in exchange for their work. This includes wages, salaries, bonuses, commissions, tips, and other forms of compensation.
According to the Internal Revenue Code, earned income includes:
- Wages and salaries
- Tips
- Other employee compensation
- Net earnings from self-employment
For example, if you work at a restaurant and receive a salary, tips, and a bonus, all of these would be considered earned income.
Additionally, some payments related to retirement compensation or long-term disability benefits may also be considered earned income.
People with low income who meet certain requirements may be eligible for a federal earned income tax credit. This credit can reduce their tax bill and may even result in a refund of previously paid taxes.
Overall, earned income is the money a person earns through their work, and it can come in many different forms.