What Is Unearned Income?

What Is Unearned Income?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Unearned income refers to the money that an individual receives from sources other than employment. This can include income from rental properties, dividends from investments, interest from savings accounts, and payments from retirement plans. In general, unearned income is not subject to employment taxes.

Related Questions

1. How is unearned income taxed?

Unearned income is typically subject to federal income tax. The tax rate can vary depending on the source of the income, and it might also be subject to state taxes. Certain types of unearned income, like capital gains, may be taxed at a lower rate.

2. Are there any age restrictions on unearned income?

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No, there are no age restrictions on earning unearned income. People of any age can receive unearned income. However, there are certain Internal Revenue Service (IRS) rules about how unearned income is taxed for individuals under the age of 19, or full-time students under the age of 24.

3. Can unearned income affect Social Security benefits?

Generally, unearned income does not affect Social Security benefits. The Social Security Administration (SSA) only takes into account earned income when determining whether benefits will be reduced. However, unearned income may be considered when determining eligibility for Supplemental Security Income (SSI).

4. What’s the difference between earned and unearned income?

Earned income is money received from work or self-employment, including wages, salaries, and tips. Unearned income, on the other hand, is income not derived from work, such as rental properties, dividends, and interest.

5. Are dividends considered unearned income?

Yes, dividends from investments are typically considered unearned income because they are income received not in return for work, but as a return on an investment.