The Code defines earned income as "wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered."13 In essence, it includes all forms of compensation that are paid for work the taxpayer performed. Any compensation that does not fall into the earned income category is considered unearned income, which by default includes any income that is not earned. Form 8615, Tax for Certain Children Who Have Unearned Income, which reports the kiddie tax, calculates unearned income for a qualifying child by taking all the child's income and subtracting both earned income and any penalties paid for early withdrawal of savings. This means the unearned income includes, but is not limited to, income from dividends, interest income, certain royalties, most rent income, and capital gains. An often-overlooked form of unearned income for a child is taxable scholarship income for which a Form W-2 is not issued because it is not earned income.14
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