Some types of unearned income are—
(a) Annuities, pensions, and other periodic payments. This unearned income is usually related to prior work or service. It includes, for example, private pensions, social security benefits, disability benefits, veterans benefits, worker's compensation, railroad retirement annuities and unemployment insurance benefits.
(b) Alimony and support payments. For SSI purposes, alimony and support payments are cash or in-kind contributions to meet some or all of a person's needs for food or shelter. Support payments may be made voluntarily or because of a court order. Alimony (sometimes called maintenance ) is an allowance made by a court from the funds of one spouse to the other spouse in connection with a suit for separation or divorce.
(c) Dividends, interest, and certain royalties. Dividends and interest are returns on capital investments, such as stocks, bonds, or savings accounts. Royalties are compensation paid to the owner for the use of property, usually copyrighted material or natural resources such as mines, oil wells, or timber tracts. Royalty compensation may be expressed as a percentage of receipts from using the property or as an amount per unit produced. (See § 416.1110(b) if you receive royalties as part of your trade or business and § 416.1110(e) if you receive royalties in connection with the publication of your work.)
(d) Rents. Rents are payments you receive for the use of real or personal property such as land, housing, or machinery. We deduct from rental payments your ordinary and necessary expenses in the same taxable year. These include only those expenses necessary for the production or collection of the rental income and they must be deducted when paid, not when they are incurred. Some examples of deductible expenses are interest on debts, State and local taxes on real and personal property and on motor fuels, general sales taxes, and expenses of managing or maintaining the property. (Sections 163, 164, and 212 of the Internal Revenue Code of 1954 and related regulations explain this in more detail.) We do not consider depreciation or depletion of property a deductible expense. (See § 416.1110(b) for rules on rental income that is earned from self-employment. For example, you may be in the business of renting properties.)
(e) Death benefits. We count payments you get which were occasioned by the death of another person except for the amount of such payments that you spend on the deceased person's last illness and burial expenses. Last illness and burial expenses include related hospital and medical expenses, funeral, burial plot and interment expenses, and other related costs.
Example: If you receive $2,000 from your uncle's life insurance policy and you spend $900 on his last illness and burial expenses, the balance, $1,100, is unearned income. If you spend the entire $2,000 for the last illness and burial, there is no unearned income.
(f) Prizes and awards. A prize is generally something you win in a contest, lottery or game of chance. An award is usually something you receive as the result of a decision by a court, board of arbitration, or the like.
(g) Gifts and inheritances. A gift is something you receive which is not repayment to you for goods or services you provided and which is not given to you because of a legal obligation on the giver's part. An inheritance is something that comes to you as a result of someone's death. It can be in cash or in kind, including any right in real or personal property. Gifts and inheritances occasioned by the death of another person, to the extent that they are used to pay the expenses of the deceased's last illness and burial, as defined in paragraph (e) of this section, are not considered income.
(h) Support and maintenance in kind. This is food, or shelter furnished to you. Our rules for valuing this income depend on your living arrangement. We use one rule if you are living in the household of a person who provides you with both food and shelter. We use different rules for other situations where you receive food or shelter. We discuss all of the rules in §§ 416.1130 through 416.1147.
[45 FR 65547, Oct. 3, 1980, as amended at 56 FR 36000, July 30, 1991; 59 FR 43471, Aug. 24, 1994; 70 FR 6345, Feb. 7, 2005]
FAQs
Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust.
What is classed as unearned income? ›
Unearned income is any form of income you earn passively. Examples include interest on investments, dividends, lottery or casino winnings, and rental income from investment properties. Earned income, on the other hand, is any compensation you receive for providing a service.
What are four types of earned income? ›
Earned income includes all of the following types of income: 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.
What is unearned income considered as? ›
Unearned revenue is money received by an individual or company for a service or product that has yet to be provided or delivered. It is recorded on a company's balance sheet as a liability because it represents a debt owed to the customer.
What is not unearned income? ›
First, let's explore definitions. Earned income is what you receive from actively working. It includes wages, salaries, and self-employment income. Unearned income is from anything other than work, unemployment, retirement, investments, etc.
What is a form of unearned income? ›
Two examples of unearned income you might be familiar with are money you get as a gift for your birthday and a financial prize you win. Other examples of unearned income include unemployment benefits and interest on a savings account.
What is the threshold for unearned income? ›
The minimum income requiring a dependent to file a federal tax return. 2023 filing requirements for dependents under 65: Earned income of at least $13,850, or unearned income (like from investments or trusts) of at least $1,250.
Which of the following is not considered earned income? ›
Earned income also includes net earnings from self-employment. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.
What is an example of unearned income in accounting? ›
A few typical examples of unearned revenue include airline tickets, prepaid insurance, advance rent payments, or annual subscriptions for media or software. For example, imagine that a customer purchases an annual subscription for a streaming music service. The customer pays $50 up front for the full year of service.
Are gifts unearned income? ›
A gift is unearned income subject to the general rules pertaining to income and income exclusions.
Unearned income, also known as passive income, is derived from sources other than employment or business operations and can act as a financial safety net during times of job loss or financial crisis. It can also be a significant source of income during retirement.
What are the 3 most common types of income? ›
Three of the main types of income are earned, passive and portfolio. Earned income includes wages, salary, tips and commissions. Passive or unearned income could come from rental properties, royalties and limited partnerships.
Is social security considered unearned income? ›
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives.
What category is unearned revenue? ›
Unearned revenue is an account in financial accounting. It's considered a liability, or an amount a business owes. It's categorized as a current liability on a business's balance sheet, a common financial statement in accounting.
How to make unearned income? ›
If you own a property and rent it out, the rent money you receive is considered unearned income. You're not actively working each day to earn this income; instead, it's your property that's working for you. Unearned income also includes interest from savings accounts or bonds.
What type of accounts are unearned? ›
Unearned revenue is an account in financial accounting. It's considered a liability, or an amount a business owes. It's categorized as a current liability on a business's balance sheet, a common financial statement in accounting.
What is unearned income in kind? ›
Income-in-kind is considered either unearned or earned income-in-kind. Unearned income-in-kind is a contribution which does not represent compensation for a job performed. Treatment: Excluded Income.
Is Social Security considered unearned income? ›
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives.
