Unearned Income

Unearned income is income that is received without providing any goods or services in return. This can include income from investments, such as dividends and interest, as well as government benefits, such as Social Security and unemployment benefits.

Unearned income is taxed differently than earned income, which is income from work. The tax rates on unearned income are generally lower than the tax rates on earned income. This is because unearned income is considered to be less of a burden on taxpayers than earned income.

There are a few exceptions to the general rule that unearned income is taxed at a lower rate than earned income. For example, capital gains taxes are taxed at a higher rate than ordinary income. And, if you have a high income, you may have to pay the net investment income tax on your unearned income.

It is important to understand the difference between earned and unearned income, as this can affect your tax liability. If you have a lot of unearned income, you may want to consider investing in tax-advantaged accounts, such as a Roth IRA or a 529 plan. This can help you reduce your tax bill and save for retirement or your child's education.

Here are some additional details about unearned income:

* Unearned income is typically taxed at a lower rate than earned income.
* There are a few exceptions to this rule, such as capital gains taxes and the net investment income tax.
* If you have a lot of unearned income, you may want to consider investing in tax-advantaged accounts.
* Unearned income can include income from investments, such as dividends and interest, as well as government benefits, such as Social Security and unemployment benefits.