earned income

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Earned Income means monetary compensation received from services rendered including wages, salaries, bonuses, commissions, tips, etc.

According to 26 U.S. Code § 32, earned income is defined under the Internal Revenue Code as wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus net earnings from self-employment for the taxable year. 

In some cases, payments pertaining to overdue retirement compensation, long-term disability benefits, etc. may also be included in earned income. Individual(s) who have relatively low income in a taxable year and they also meet certain other requirements, are eligible for a federal earned income tax credit. This reduces their tax bill and may result in the refund of a previously filed tax.  

[Last updated in July of 2021 by the Wex Definitions Team]