LENDNATION WIKI
What Is Earned Income? Understanding Your Paycheck and Tax Benefits
Earned income is money you make from working. It includes wages, salaries, tips, and other payments you get for the work you do. If you have a job where you receive a paycheck, you’re receiving earned income. It’s different from unearned income, which might come from investments, government benefits, or pensions.
What Is Considered Earned Income?
Here’s what typically counts as earned income:
- Wages and salaries: Money earned from working a job
- Tips: Extra money received directly from customers
- Self-employment income: Money you earn from running your own business or working as a freelancer
- Certain disability benefits: Payments you receive before reaching minimum retirement age
Earned Income Tax Credit (EITC)
One of the key benefits of earned income is qualifying for the Earned Income Tax Credit (EITC). This is a tax credit for low-to-moderate-income workers, especially those with children, and it can reduce the amount of tax you owe or even possibly help get you a refund.
How Do I Know If I Qualify For EITC?
Qualifying for the EITC depends on several factors:
- Your income level: You must fall within a certain income range, which may change annually
- Your filing status: Whether you’re single, married, or head of household
- Number of dependents: The more qualifying children you have, the higher the credit
- Proof of earned income: You need to show that you’ve earned income from working
To find out if you qualify, you can use tools like the IRS EITC Assistant or talk to a tax professional. Claiming this credit can significantly impact your tax situation, potentially leading to a larger refund that could help cover immediate expenses or pay down debts.
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Summary
Understanding earned income is more than just knowing where your paycheck comes from—it’s about recognizing how it can affect your taxes and financial planning.
By knowing more about what counts as earned income and taking advantage of tax credits like EITC, you can better manage your finances and potentially increase your tax refunds.