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What is income? 20 essential terms to know in 2022

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We’ll need two years of income tax statements to process your home loan application.

I’m going to need to see your last two month’s pay stubs to verify your income.

You’re taxed on your adjusted gross income, not your net income.

"Income" is a word we hear used frequently and is an integral part of our lives. For example:

  • We design our lifestyle based in large part on what our income is.
  • We prefer to increase our income rather than reduce our expenses when it comes to budgeting.
  • We often measure our professional success by our income.

The pandemic that began in 2021 has dramatically affected many people’s incomes, and 2022 promises to be a re-building year for millions of Americans. They not only want more flexibility in their jobs, but they also want a higher income than they previously had.

If you’d like to increase your income, being well-versed in its terminology is essential. To assist you with that, we’ve identified 20 key terms that you’ll not only find informational, but you’ll also find that they’ll stimulate your thinking and quite possibly help you develop a whole new philosophy about earning income.

Definition: Income is the sum of any wage, salary, profit, interest payment, rent, or other forms of earnings received by a household, individual, or business.

Active income

Active income refers to income received for performing a service. Wages, salaries, tips, commissions, and income from businesses in which there is material participation are examples of active income.

[ Related: Passive income vs. active income ]

Adjusted gross income

Adjusted Gross Income (AGI) is defined as gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions, as well as other income.

Adjustments to Income include educator expenses, student loan interest, alimony payments, or contributions to a retirement account. Your AGI will never be more than your total gross income on your tax return, and in some cases, may be lower.

Your modified adjusted gross income (MAGI) is your adjusted gross income (AGI) after taking into account certain allowable deductions and any tax penalties. For many taxpayers, the numbers are the same.

It can help reduce taxable income to account for retirement account contributions, factor in eligibility for benefits like the student loan interest deduction and the child tax credit, and establish eligibility for income-based Medicaid coverage or a health insurance subsidy.

Annual income

Annual income is the amount of income you earn in one fiscal year. It includes everything from your yearly salary, bonuses, commissions, overtime, tips earned — any source of payment to you, either active or passive.

From a taxation standpoint, there are two types of annual income that determine taxes owed:

  • Gross annual income: earnings before taxes are deducted
  • Net annual income: the amount left after deductions

Debt-to-income ratio

Debt-to-income (DTI) ratio refers to how much of a borrower’s monthly income is consumed by debt. Creditors, especially mortgage lenders, want to know what is left over after all monthly bills have been paid.

The ratio is calculated by dividing monthly debt payments by gross monthly income. This impacts a person’s credit score and the types of lenders willing to lend a borrower money.

Disposable income

Also known as disposable personal income (DPI), disposable income is the amount of money an individual or household has left to spend or save after taxes have been deducted from their income. It is one of the key economic indicators used to gauge the overall state of the economy.

Earned income credit

The earned-income credit (EIC) is a refundable tax credit that helps certain U.S. taxpayers with low earnings by reducing the amount of tax owed on a dollar-for-dollar basis. Taxpayers may be eligible for refunds if their tax credit exceeds their tax liability for the year. Legislation enacted in 2020 recognized that many taxpayers’ incomes that year were lower than their incomes in 2019 due to the economic crisis and lockdown; this law allows taxpayers to base the EIC claimed on their 2020 tax returns on either their 2019 or 2020 earnings.

For 2021 tax returns, the law liberalizes some EIC rules and makes an increased EIC available to more childless taxpayers.

Fixed income

Fixed income is an investment approach focused on preserving capital and income. It typically includes investments like government and corporate bonds, CDs, and money market funds.

Fixed income can offer a steady income stream with less risk than stocks.

Gross income

Gross income for an individual — also known as gross pay when it’s on a paycheck — is the individual’s total pay from their employer before taxes or other deductions. This includes income from all sources and is not limited to income received in cash; it also includes property or services received.

Gross annual income is the amount of money that a person earns in one year before taxes and includes income from all sources.

Income protection insurance

Income protection insurance is a type of coverage that replaces a portion of your monthly income if you become too sick or hurt to work. Also known as disability income insurance or simply disability insurance, it's the best way to protect your most valuable asset — your ability to work and earn an income.

Get an income protection insurance quote online!
What's your gender?
What's your birth date?
Do you use nicotine?
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What type of worker are you?


Do you work at least 30 hours per week?
What is your net annual income?

i.e. Your income less any expenses

How would you categorize your current job?



Which one best describes you?


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Income statement

An income statement tells you whether or not a company made a profit or loss during the reporting period. It is one of three major financial statements used to evaluate the health of a company, along with the balance sheet and cash flow statement.

Income tax

Income tax is a tax levied by a government (federal or state) on income, especially an annual tax on personal income.

Earnings subject to income taxes can come from diverse sources, including wages, salaries, dividends, interest, royalties, rents, gambling winnings, and product sales. In the United States, income tax is one of the biggest sources of revenue for the federal government.

Income tax bracket

An income tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

Federal individual income tax brackets range from 10% to 37%. State income tax brackets will vary from state to state.

Imputed income

Imputed income is benefits employees receive that aren’t part of their salary or wages (like access to a company car or a gym membership) but get taxed as part of their income. The employee may not have to pay for those benefits, but they are responsible for paying the tax on their value.

Some benefits employees receive are excluded and tax-exempt, such as health, life, and disability insurance, or meals.

[ Related: 20 best employee benefits in 2022 ]

Interest income

Interest income is the amount of interest that has been earned during a specific time period. It is earned from investments that pay interest, such as in a savings account or certificate of deposit.

Net income

Net income refers to the amount an individual or business makes after deducting costs, allowances, and taxes.

For an individual, net income is the “take-home” pay after deductions for taxes, health insurance, and retirement contributions have been made.

Passive income

Passive income is earnings derived from a rental property, limited partnership, or another enterprise in which a person is not actively involved. As with active income, passive income is usually taxable, but the IRS often treats it differently.

Residual income

Residual income is income someone continues to receive after completing the income-producing work. Examples of residual income include royalties, rental/real estate income, interest and dividend income, and income from the ongoing sale of consumer goods (such as music, digital art, or books).

Supplemental Security Income

Supplemental Security Income (SSI) is a federal program in the United States that provides additional income for older and disabled people with little to no income. This program provides participants with monthly cash distributions to help them meet their basic needs.

Unearned income

Unearned income is income from investments and other sources unrelated to employment. Examples of unearned income include interest from savings accounts, bond interest, alimony, and dividends from stocks.

Unearned income, also known as passive income, is income not acquired through work and often is the only source of income in post-retirement years.

Universal basic income

Universal basic income (UBI) is a government program where every adult citizen receives a set amount of money regularly. The goals of a basic income system are to alleviate poverty and replace other need-based social programs that potentially require greater bureaucratic involvement.

The idea of universal basic income, which has been around for centuries, has gained momentum in the U.S. as automation increasingly replaces workers in manufacturing and other sectors of the economy.

Final thoughts

If you’d like to become a student of personal finance in 2022, bookmark this page and refer to it often. It is intended to both inform and be thought-provoking concerning the numerous different types of income that exist.


Having spent over fifteen years helping people plan their lives financially, Bob has a vast amount of personal knowledge concerning estate planning and many other end-of-life details. During his career, Bob mastered many different financial products to help people achieve their financial goals, including life insurance, disability insurance, mutual funds, and stocks and bonds. He earned the Chartered Life Underwriter (CLU) designation and held numerous securities licenses. Bob is an internationally published poet and is now a freelance writer living in North Texas with his wife and Doberman puppy.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

Money
Published December 06, 2021