In most situations, when a person is talking about income, they mean the earnings they received in the form of a salary or wages from the work they performed. However, income can also include distributions from the government, pension distributions, or earnings from investments. Income is typically cash, but it could also be property or the transfer of any other item that has value.

In taxation, taxable income is the amount of earnings that taxes may apply to the individual. Taxable income is the total annual income (or gross income received) minus any deductions or exemptions a person qualifies for under the tax law.

• Gross income refers to the total amount of money a person receives, such as a salary or wages.
• Net income is the gross wages minus any taxes or fees.
• Discretionary income refers to a person's money after paying all financial obligations.

Earned Income

Earned income is one of the most important concepts to consider. This is the money a person makes for their work. Earned income comes in various forms, and here's a look at some examples.

• Wages: A person's wages typically are the amount they earn per hour (or other lengths of time) for the work they do. Wages may include overtime hours.
• Salaries: A salary is the amount of money that a person is paid for the work they do, but it is not typically an hourly wage. Rather, it is a flat payment made no matter what hours a person works.
• Bonuses: A bonus is an additional payment on top of what a person earns through their salary or wages. It is additional financial compensation paid for achieving a milestone, for example, or for other reasons. It is in addition to wages or salary paid.
• Commission: Some people are paid based on the amount of products or services they sell. The amount may be a percentage or a flat fee based on the employee's sales.
• Tips: A tip is an additional amount of money received by the employee paid by the service receiver. A tip, for example, on a restaurant check, could be an added payment on top of the bill for services. Tips can range widely.

Unearned Income

Unearned income is any type of income a person receives that is not directly correlated to the amount or type of work they do. It is money earned that does not involve any personal labor. There are various types of unearned income, and while all typically require some action to put them in place, they result in income without actual physical work. Some examples include the following:

• Interest: Interest is one of the most common forms of unearned income. For example, it's money received from the application of interest on a savings account. It is often related to income received based on holding funds in an account.
• Dividend: A dividend is somewhat like interest, but it is typically the reflection of the performance of some underlying investment. This payment is made to the investment holder when the underlying investment performs positively. There are various types of dividends, such as the money investors receive from a company.

Other sources

There are numerous other sources of unearned income. This could include:

• Retirement accounts: Examples here include an IRA or 401(k). Annuities fall in this area, too.
• Gifts: Any type of monetary or high-valued gift can be considered income.
• Inheritances: Money received concerning the death of a relative or the passing of another person's wealth or assets to a family member.
• Alimony: This type of income is paid after a divorce in which one person earned more than the other and continued income to supplement the needs of the person earning less.
• Lottery winnings: Winnings from any type of lottery could be considered income in some ways.

Public Benefits or Entitlements

Public benefits and entitlements are other forms of income. They could include money received for disability, retirement, or other reasons based on a person's qualifications. Some examples include:

• Social Security benefits: This could include Social Security disability benefits as well as earnings received after retirement for those who qualify.
• Welfare benefits: Those who meet specific financial or other requirements may receive funds from the government in some form to help cover their costs.
• Unemployment compensation: These are funds paid after a person loses their job through no fault of their own.
• Veterans Affairs benefits: VA benefits are paid to a person who is in or was in the U.S. Armed Forces and receives income during their active duty or during retirement.
• Housing benefits: These are monetary funds paid out to help cover the costs of housing for a person who meets economic qualifications for them.
• Educational benefits: Paid to students at all levels of education, including college, to help cover the cost of their education.
• Workers' compensation: Workers' compensation is paid out when a person is hurt on the job as a result of that job and paid until they can return to work.

Other Income

There could be other types of income that may fall into separate areas. For example, if a person owns real estate and rents out that real estate, they may receive payment from tenants, and that money is an income to the property owner receiving the funds.

These income examples are the most common, but others also exist. Any time a person receives money from another person, company, or government establishment, those funds could be seen as income. They must be allocated as such for taxes and other reporting requirements.