Understanding the Difference Between Earned Income and Adjusted Gross Income

1. Wages and Salaries:
   The most common form of earned income is your regular paycheck from an employer. This includes your hourly wages, salaries, and any bonuses you receive for your work.
2. Self-Employment Income:
   If you run your own business or work as an independent contractor or freelancer, the income you generate from these activities is considered earned income.
3. Tips and Commissions:
   Any tips, gratuities, or commissions you earn as part of your job or business activities also fall under the earned income category.
4. Farming and Fishing Income:
   For individuals engaged in farming or fishing, the income they generate from these activities is considered earned.
5. Rental Real Estate:
   Rental income is generally not considered earned income unless you are actively involved in the day-to-day management or provide substantial services to the rental property.

1. Educator Expenses:
   Teachers and other eligible educators can deduct certain expenses related to their jobs.
2. Student Loan Interest:
   You can deduct the interest paid on eligible student loans.
3. Contributions to Retirement Accounts:
   Contributions made to traditional IRAs, 401(k)s, and other qualified retirement accounts are deductible up to certain limits.
4. Health Savings Account (HSA) Contributions:
   Contributions to an HSA are generally tax-deductible.
5. Moving Expenses (in certain cases):
   If you move for a job-related reason, you may be able to deduct eligible moving expenses.
6. Half of Self-Employment Tax:
   Self-employed individuals can deduct a portion of their self-employment tax when calculating AGI.
7. Alimony Paid:
   Alimony payments made under specific conditions can be deducted.

1. Scope of Income:
   Earned income includes only income from active participation in work or business activities. At the same time, AGI encompasses all sources of income, including earned income, investments, and other passive income.
2. Deductions:
   Earned income does not consider deductions, while AGI accounts for above-the-line deductions to arrive at a lower taxable income.
3. Taxable Income:
   Your AGI calculates your taxable income, which is the amount you'll be taxed. Earned income, on the other hand, is merely a component of your AGI.
4. Tax Implications:
   Earned income is important for determining specific tax credits like the EITC, while AGI is critical for determining your overall tax liability.