Unearned Income

Written By
Paul Tracy
Updated November 4, 2020

What is Unearned Income?

Unearned income is an IRS term for income that is not obtained by participating in a business or trade (e.g., salaries and bonuses, wages, commissions and tips). It typically includes interest, dividends, pensions, social security, unemployment benefits, alimony and child support.

How Does Unearned Income Work?

John Doe works in the marketing department for Company XYZ. His salary is $75,000 per year, and this year he also received a $5,000 bonus. His earned income is $75,000 + $5,000 = $80,000.

John Doe also owns some dividend stocks and receives a pension from his first career as a firefighter. He receives $200 a month in dividends and $1,000 a month from his pension. John’s unearned income is $1,200 per month x 12 months = $14,400.

Why Does Unearned Income Matter?

Unearned income is different from earned income, which generally is income that is obtained by participating in a business or trade -- typically, this means salaries and bonuses, wages, commissions and tips. Union strike benefits are also considered earned income, as are long-term disability benefits received prior to minimum retirement age.

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Unearned Income.
Be the first to ask a question

If you have a question about Unearned Income, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Unearned Income, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Unearned Income

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms