Earned Income

Earned income includes all of the following types of income:

  1. Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below.
  2. Net earnings from self-employment.
  3. Gross income received as a statutory employee.

Nontaxable combat pay election. You can elect to include your nontaxable combat pay in earned income for the earned income credit.

Net earnings from self-employment. You may have net earnings from self-employment if:

Minister's housing. The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment.

Statutory employee. You are a statutory employee if you receive a Form W-2 on which the Statutory employee box (box 13) is checked.

Strike benefits. Strike benefits paid by a union to its members are earned income.

Amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation. Amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.

Disability Benefits. If you retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income.

This information is found in Publication 596, Earned Income Credit.