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What are the four categories of income?


There are different income categories based on context. The case is different for the government that categorizes for taxation purposes. In that case, there will be taxable and non-taxable income. Entrepreneurs and other experts in business will talk of passive, residual and leveraged income.

There are different sources of income that can be categorized into four categories. These cut across income for businesses and individuals. Here are the four income categories:

Earned Income. This is usually employee Compensation, salary or wages. It refers to income obtained from active involvement in either a business or a job.

 Passive Income. This is the income that you get from money saved in financial institutions for interest. It is income earned without much work. For example, earning net interest from savings or sharing corporate profits.

 Investment Income. This is income earned when money is working for you. Putting money to work after earning it from other sources is what leads to this other type of income. It could be rental income and so on.

Unearned Income.  This includes inherited income, alimony, unemployment benefits and so on. It’s income earned without any work or personal investment made.

3 years ago