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  • Earned income is generally money you work for, rather than money derived from other sources, such as interest. The Internal Revenue Service (IRS) taxes most earned income, and provides an "earned income credit" for individuals and families who qualify.

    Obtaining Earned Income

    According to the IRS, there are two ways you can earn income. The first is to be employed by someone else. The second is to own a business. Either way, an individual derives a salary by working for a taxable wage.

    Unearned income

    There are ways we get money without actually working for it. Among other things, the IRS list includes interest or dividends, certain pension benefits, unemployment, child support, and Social Security benefits.These monies are sometimes taxable, but they don't count as earned income.

    Special Rules

    Some earned income is exempt from taxes. For instance, certain military benefits, like on-post housing, or combat pay, are tax free. Religious leaders also enjoy tax-free housing. Other examples include certain disability benefits and disability insurance payments.

    Earned Income Credit

    The earned income credit was approved by Congress in 1975. It was conceived in order to help working Americans to live more comfortably. Even if the individual or family does make enough money to file an income tax return, it must be filed to get the credit.

    Tax Credit Qualifications

    IRS Publication 596 lists the exact qualifications for individuals or families who file for the Earned Income Credit. The amount of earned income that qualifies depends on marital status and the number of dependent children in the family.

    Source:

    IRS Definition of Earned Income

    Earned Income Credit

    IRS Publication 596

    Resource:

    IRS.gov

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