Unearned Income: 9 Types You Need to Know About
Unearned income is income from sources, not from employment or a job. The IRS views unearned income as income from sources other than personal effort. For example, income from a salary, wages, tips, self-employment, and a few other sources are earned income.
Investment income is the profit generated from the sale of real estate or stocks. An investor selling an asset for profit will generate capital gains from the sale.
Long-Term Capital Gain Distributions
Mutual funds pay capital gains distributions to shareholders. This money comes from selling stocks, bonds, or other assets owned by the mutual fund. The profits are distributed to shareholders as capital gains.
Dividend income results from money paid to stockholders from the dividends paid by companies. An investor can generate passive income and possibly live off dividends.
Retirement income is derived from pensions, annuities, and distributions from 401(k) plans and Individual Retirement Accounts (IRAs). Social Security retirement benefits are included in this category.
Unemployment benefits are paid to individuals who lose their jobs through no fault of their own.
Alimony and Child Support Payments
Both alimony and child support payments are considered unearned income. However, alimony payments are taxable in many instances, while child support payments are neither deductible by the payer nor taxable income by the recipient.
Lottery Winnings or Prizes
After purchasing a lottery ticket, a person who wins the lottery is lucky, but the winnings are unearned income. Similarly, winning at a casino, horse racing, sports betting, off-track betting, and game shows are unearned income.
Gifts and Inheritance
Gifts are unearned income but are still subject to federal gift taxes in certain circumstances. From the tax perspective, gifts can be a complicated subject, and it is recommended to ask an expert.
Swipe up to Read More on Unearned Income: 9 Types You Need to Know About!