Payments received as royalties from an active trade or business are considered to be what type of income?

Payments received as royalties from an active trade or business are classified as earned income because they arise from business activities that involve the active engagement of the payee. Earned income typically includes wages, salaries, commissions, and income derived from participating in a trade or business, which encompasses royalties earned from the exploitation of intellectual property or products associated with a business operation.

This classification signifies that the income is generated through efforts related to a business or trade rather than through passive means such as investments or simply holding assets. Therefore, royalties earned through active participation in a business are rightfully categorized as earned income, reflecting the active contribution of the entity or individual.