9 Types of Unearned Income You Need to Know About
It is essential to know the difference between earned and unearned income since they are taxed differently in the US.
Earned income is subject to regular income tax and employment taxes. On the other hand, unearned income is not usually subject to ordinary income tax but is subject to capital gains tax.
9 Types of Unearned Income
Investment income includes interest from savings, money market accounts, CDs, and dividends from bonds. The tax rates on capital gains and interest income may be different.
Retirement income is derived from pensions, annuities, and distributions from 401(k) plans and Individual Retirement Accounts (IRAs).
Gifts and Inheritance
Gifts can be a complicated subject. Gift taxes are based on the dollar value of the gift, whether it is cash, property, stocks, or other assets.
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