The IRS has the authority to tax all income from whatever source derived, including compensation for services, gains from dispositions of property, interest and dividends, rent and royalties, pension and annuities, gambling winnings and even bribes. However, not all inflows of money or property are taxable or subject to tax.
Earned income includes all the taxable income and wages a taxpayer gets from working or from certain disability payments. Taxable earned income includes:
Wages, salaries, tips, and other taxable employee pay
Union strike benefits
Net earnings from self-employment; and
Long-term disability benefits received prior to the minimum retirement age.
Unearned income includes any income received from investments and other sources unrelated to employment services, such as interest, dividends, alimony, etc.