Not all income is treated the same at tax time. Understanding how different types of income are taxed can help you make smarter financial decisions.

Earned Income: Your Working Money

This is money you earn from working - things like:

• Your regular paycheck
• Tips you receive
• Bonuses from your job
• Money from self-employment

The IRS taxes earned income at regular tax bracket rates. If you're self-employed, you'll also pay self-employment tax (about 15.3%) to cover Social Security and Medicare that an employer would normally pay half of.

Investment Income: Making Your Money Work for You

When your money makes money, it's usually treated differently for taxes. Here's how:

Interest Income

Money you earn from your savings account or bonds gets taxed just like your paycheck - at your regular tax rate. Your bank sends you a 1099-INT showing how much you earned.

Dividends

Companies paying you dividends might send you a 1099-DIV. There are two types:

• Regular (qualified) dividends get a special lower tax rate
• Non-qualified dividends are taxed like your paycheck

Capital Gains

When you sell something for more than you paid, that's a capital gain. The tax you pay depends on how long you owned it:

• Less than a year? It's taxed like your paycheck
• More than a year? You get a special lower rate (0%, 15%, or 20% depending on your income)