Types of income that count as earned income
The IRS considers the following income as earned income:
- Wages, salary, and tips reported on a W-2
- Net earnings from self-employment or freelance work, including gig income from apps like DoorDash or Uber
- Net earnings from a business or farm you own
- Union strike benefits
- Certain taxable disability retirement benefits, but only if you receive them before reaching minimum retirement age
- Nontaxable combat pay, if you choose to include it (this can raise or lower your EITC amount)
Income that doesn’t count as earned income
These sources are considered unearned income and don’t count toward earned income totals:
- Interest, dividends, and capital gains
- Rental and royalty income
- Social Security benefits and pensions
- Unemployment compensation
- Alimony
Self-employment and gig income
If you’re self-employed or work gig jobs, your earned income is your net earnings: what’s left after you subtract allowable business expenses from your total revenue.
Say you earn $48,000 driving for a gig app and claim $6,000 in deductible expenses for mileage and fees. $48,000 − $6,000 = $42,000 in earned income for the year. You’ll report this income and your expenses on Schedule C, attached to Form 1040.
Why earned income matters
Two things depend directly on how much earned income you have:
- Eligibility for the Earned Income Tax Credit (EITC): You need at least $1 of earned income to claim it, and the credit amount is based partly on how much you earned.
- IRA contribution limits: You (or your spouse, if filing jointly) generally can’t contribute more to an IRA in a year than you have in earned income.
