Earnings vs. Wages: Understanding the Key Differences
When a person without knowledge of investments sees "earnings and wages," he may believe they are the same thing. While wages and earnings are often used to mean the same thing, there are different meanings ascribed to the term "earnings." Earnings may come from sources other than wages, such as royalties, passive income, interest and more.
Wages and Salary
The IRS uses the terms wages and salary, combined with tips, commissions and bonuses, to specify money earned for providing a service to a company. The term "earnings" is interchangeable with wages when it means money obtained for hourly or salary work. The IRS counts tips, bonuses and sales incentive as a part of wages for purposes of reporting income during the tax-reporting season.
Earnings
The term "earnings" has multiple meanings. It can mean money received from wages, or it can mean money received from non-earned income sources. It can also mean the money a company gains after deducting expenses from income. Authors, musicians, performers and more usually don't receive a wage. Instead, they receive royalty payments or a percentage of the retail value for their creative work. They receive payments on a regular basis -- monthly, quarterly, semiannually or annually -- depending upon their contract agreements. When you're an independent contractor, you don't receive a regular wage because you're not on payroll. Instead, you'll receive payment for the service provided, deemed "earnings" as opposed to salary, depending upon the lexicon of the person using the term.
Income
Other forms of earnings come via stock investments and sales, stock dividends, bond dividends or interest, money market or savings accounts interest, commissions or referral fees for sales of products and more. Many people refer to the term "passive" income when speaking about continued earnings from situations in which work performed was completed once but the passive income continues, such as in online affiliate marketing and sales of information products on the Internet.
Retirement Income
Retirement income is also referred to as earnings not considered as wages. When you retire, you no longer work a job. Instead, sound investment or retirement programs provide the income or earnings needed to make a living. Individual retirement accounts (IRAs), public employee retirement accounts, company retirement or 401k plans are some of the sources for retirement income.
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