Earned income is a term used to describe income that an individual or business receives in exchange for work or services provided. This includes wages, salaries, bonuses, tips, and commissions. Earned income is distinguished from unearned income, which includes income from investments, such as dividends, interest, or capital gains.
The earned income credit (EIC or EITC) is a tax credit designed to help low- and moderate-income workers. This credit can significantly reduce the amount of taxes owed or even result in a refund. To qualify for the EIC, taxpayers must meet certain income and eligibility requirements.
Net income is a measure of how much money a person or a business makes after accounting for all costs. This includes expenses such as rent, utilities, materials, and payroll. Net income is an important metric for measuring financial performance, as it indicates how much money is left over after expenses have been paid.
A qualifying relative is a person designated by the Internal Revenue Service (IRS) who can be claimed as a dependent by a taxpayer, assuming the taxpayer provides more than half of the person's support and meets other eligibility criteria. This can include children, parents, siblings, and other relatives.
Taxable income is the amount of money an individual or business has received over the course of a particular tax year in both earned and unearned income. This figure is used to determine how much tax is owed to the government.
Over the past month, and for the foreseeable future, tax relief has been a hotly debated topic in Lansing. Tax code can be one of the most confusing and daunting aspects of personal and business finance, and understanding the implications of various tax relief proposals is crucial for making informed decisions.
The definition of modified adjusted gross income (MAGI) differs depending on what it is used for. For example, MAGI is used to determine eligibility for certain tax credits and deductions, as well as for determining eligibility for Medicaid and other government programs.
Investment income refers to money earned by financial assets or accounts, such as stocks, bonds, mutual funds, or savings accounts. Investment income comes in three forms: interest, dividends, and capital gains. Understanding these different types of investment income is important for managing personal finances and making informed investment decisions.
One proposal currently under consideration in Michigan would increase the state EIC to 30% of the federal credit, up from 6%. This move would provide significant tax relief for low- and moderate-income families in the state.
When reporting annual income on taxes, there are two common terms used: gross income and net income. Gross income refers to the total amount of money an individual or business has earned over the course of a year, while net income refers to the amount of money left over after expenses have been paid.
In conclusion, earned income is a crucial concept for understanding personal and business finances, as it forms the basis for calculating taxes owed and determining financial performance. Understanding related concepts such as net income, qualifying relatives, taxable income, investment income, and tax relief is also important for making informed financial decisions. By staying informed and up-to-date on these topics, individuals and businesses can better manage their finances and achieve their financial goals.
