Which type of income does not include pensions and annuities?

The option that correctly identifies the type of income that does not include pensions and annuities is unearned income. Pensions and annuities are considered forms of unearned income because they are not derived from active work or services provided. Instead, they typically come from investment growth, retirement fund distributions, or insurance contracts, which do not require the recipient to actively engage in work to receive.

Earned income, on the other hand, specifically refers to income derived from employment or self-employment activities. This includes wages, salaries, tips, and other forms of compensation for work performed. Since pensions and annuities are not generated through current work, they fall outside this category and instead are classified under unearned income.

Understanding the distinctions among different types of income is crucial in tax contexts, as they are treated differently for tax purposes. Thus, recognizing that pensions and annuities constitute unearned income helps clarify the various sources of income and their tax implications.