Earned Income

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Definition of 'Earned Income'

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Earned income is income from work. This includes wages, salaries, tips, commissions, and bonuses. It also includes income from self-employment, such as profits from a business or rental income.

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Earned income is taxed at different rates than other types of income, such as investment income. The tax rates for earned income are progressive, meaning that the higher your income, the higher your tax rate.

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There are a number of deductions that you can claim for earned income. These include the standard deduction, the personal exemption, and itemized deductions. The amount of your deductions will affect your taxable income, which is the amount of income that is subject to tax.

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Earned income is an important part of your financial picture. It is the source of money that you use to pay for your living expenses, save for the future, and invest for your retirement. By understanding how earned income is taxed, you can make informed decisions about your finances.

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