How to Figure Earned Income on Your Taxes

Every year, income tax season arrives and people try to find the best way to either reduce the amount of taxes they owe or maximize their refund. In order to do this, you must first determine what your entire earned income was for the previous year. This guide will help you figure out exactly what qualifies as earned income and how to figure out your total earned income for the previous year.

Things You'll Need

• W-2s
• Invoice receipts (for goods sold and/or services rendered by you)
• All tips earned
• Calculator
• Paper
• Pen or Pencil
• Spreadsheet (optional)

Instructions

1. Determine if you have earned taxable wages, tips, salaries and any other employee pay for the previous year. If you are self-employed, this includes your net earnings from the previous year.

2. On a piece of paper or within a spreadsheet, create headings for all sources of income earned from the previous year.

3. Write down or input the net earnings from each source of income listed from Step 1. For tips, there are no net earnings, so the total value of your tips must be recorded.

4. Add together all of the earnings recorded under your sources of income.

5. 

   The sum of these numbers is your earned income and is to be used for your federal and state tax preparation.

Tips & Warnings

• The IRS has valuable tax information to ensure that taxpayers know what their responsibilities are and what credits and allowances they are eligible for.

• Tips are considered earned income and are taxable by the federal government. Keep an accurate record of ALL tips earned.

• If you are a minister or an employee of a nonprofit church, your pay is taxable if you do not have the required forms filled out to establish exempt status. Please review the IRS guidelines for your responsibilities and forms.

• If you are self-employed, keep up to date records of all earnings and expenses as self-employed individuals are susceptible to audits more frequently than employed taxpayers.

Resources

• Internal Revenue Service