Income that is earned without the direct involvement of the recipient is known as?

Income that is earned without the direct involvement of the recipient is classified as passive income. This type of income typically arises from investments or business ventures in which an individual does not actively participate. Examples include rental income from properties, earnings from limited partnerships, or dividends from stocks where the investor does not engage in the management of the underlying assets.

Passive income contrasts sharply with active income, which requires direct involvement and effort, such as wages from a job. It's also different from earned income, which encompasses pay for work performed, and portfolio income, which includes earnings from market investments in stocks, bonds, and mutual funds that may require some level of management but still do not involve active participation in day-to-day operations.

Understanding these distinctions is critical when determining tax implications and eligibility for various deductions or credits, as different types of income can be treated differently under tax law.