What type of income is subject to taxation?

Income that is subject to taxation includes both earned and unearned income. Earned income refers to the money derived from employment or active work, such as salaries, wages, bonuses, and tips. On the other hand, unearned income includes earnings from sources such as investments, interest, dividends, and rental income.

Tax systems generally consider various types of income taxable to ensure a fair contribution to public finance and services. Both categories capture a wide range of income sources, meaning individuals must include all forms of income when filing their tax returns. This comprehensive approach to taxation helps to promote equity in the tax system, as it includes individuals with diverse sources of income.

Thus, recognizing that both earned and unearned income are subject to taxation reflects an accurate understanding of how income tax operates within the broader financial system.