how is earned income taxed 
earned income is the money a person receives due to working or business activities such as earning a salary self employment income or certain government benefits this is distinct from unearned income such as receiving an inheritance capital gains or qualified dividends earned income is subject to different taxes than unearned income in the united states earned income is subject to payroll taxes medicare tax and social security tax although the latter is capped at a certain level business income gaap incomemost businesses including all public companies employ standard financial accounting methods and practices i e generally accepted accounting principles gaap to determine their income and value audited financial statements prepared in accordance with these rules are required for public companies investors assess businesses financial statements and use them to compare the performance of companies in the same or different industries gaap calculations do not incorporate the type of public policy deviations that are embodied in the tax code the two systems employ different timing standards for recognizing revenue and expenses generally the snapshot of income and business value determined using gaap provides a picture of business income and value that is often closer to economic reality than the results of tax accounting 12