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.

Here is the list that contains the most common types of unearned income. Of course, there are other types, but the ones on this list are common.

1. Unemployment Benefit

Unemployment benefits are paid to individuals who lose their jobs through no fault of their own. This unearned income is designed to partially replace a worker's lost income for necessities as they look for work.

Both alimony and child support payments are considered unearned income. Alimony refers to payments from a husband or wife to their former spouse. The term alimony is also known as spousal maintenance income.

2. Alimony and Child Support Payments

3. 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 are unearned income but are still subject to federal gift taxes in certain circumstances. Gift taxes are based on the dollar value of the gift, whether it is cash, property, stocks, or other assets.

4. Gifts and Inheritance

5. Rental Property Income

Income derived from rental real estate is unearned income. However, the income is still taxable. The main advantage is that expenses for rental properties can be subtracted from the income.

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