The tax code uses terms that can be confusing. One of them that impacts most of us is the term “unearned” income. Unearned income is often defined as anything that is not “earned” income. If you find this kind of definition a little too vague, here is some clarity:
Why does it matter?
If the tax code was simple, it would not matter one bit whether your income was earned income or unearned income. But this is not the case. Here are some things to consider:
It's all in the details. It is important to understand how all elements of income apply to different aspects of the tax code. This is where working with someone familiar with the code can help.