Table of Contents

Ordinary Income: What It Is and How It’s Taxed

By

澳洲幸运5开奖号码历史查询:Daniel Liberto

Updated January 25, 2025

Reviewed by

Lea D. Uradu

Fact checked by

Yarilet Perez

Part of the Series

Income Tax Term Guide

Taxes Definition: Types, Who Pays, and Why

Filing Status

Types of Income

Tax Types and Terms

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What Is Ordinary Income?

Ordinary income is income earned by an entity or an individual that is taxable at marginal tax rates. It can include wages, salaries, tips, bonuses, commissions, rents, and royalties.

U🔜nearned income such as short-term capital gains, unqualified d♏ividends, and interest income is also ordinary income taxed at marginal (ordinary) tax rates.

Key Takeaways

Ordinary income is any income taxable at marginal tax rates.
Examples of ordinary income include wages, salaries, tips, bonuses, commissions, rents, royalties, 澳洲幸运5开奖号码历史查询:short-term capital gains, unqualified dividends, and interest income.
For individuals, ordinary income usually consists of the pretax salaries and wages that they have earned.
It can also be 澳洲幸运5开奖号码历史查询:unearned income such as short-term capital gains, unqualified dividends, and interest income.
In a corporate setting, ordinary income comes from regular day-to-day business operations, excluding income gained from selling capital assets.

Individual Income vs. Business Income

Ordinary income comes in two forms: personal income and 澳洲幸运5开奖号码历史查询:business income. Personal ordinary income can be defined as cash inflow subject to the standard marginal income tax rates and defined by💙 the Internal Revenue Service (IRS).

For businesses, ordinary income is generated from regular day-to-day business operations, excluding any income earned from the sale of long-term 澳洲幸运5开奖号码历史查询:capital assets such as land or equipment.

Important

澳洲幸运5开奖号码历史查询:Long-term capital gains and 澳洲幸运5开奖号码历史查询:qualified dividends are taxed differently and are not considered to be ordinary income.

How Ordinary Income Is Tax🦩ed: Marginal Tax Rates

The marginal rates for tax years 2024 and 2025 that are applied to ordinary income for individuals and married couples are:

2024 Tax Year
	Income Individual Single Taxpayer	Income Married Couples Filing Jointly
37%	Over $609,350	Over $731,200
35%	Over $243,725	Over $487,450
32%	Over $191,950	Over $383,900
24%	Over $100,525	Over $201,050
22%	Over $47,150	Over $94,300
12%	Over $11,600	Over $23,200
10%	Less than $11,600	Less than $23,200

2025 Tax Year
	Income Individual Single Taxpayer	Income Married Couples Filing Jointly
37%	Over $626,350	Over $751,600
35%	Over $250,525	Over $501,050
32%	Over $197,300	Over $394,600
24%	Over $103,350	Over $206,700
22%	Over $48,475	Over $96,950
12%	Over $11,925	Over $23,850
10%	Less than $11,925	Less than $23,850

Examples

Individuals

Ordinary income for individuals typically consists of the salaries and wages earned from their employers before taxes. A person who holds a customer service job at Target and earns $3,000 p🦋er month will have a calculated annual ordinary income of $36,000, or $3000 × 12 months.

This $36,000 is taxed on their year-end tax return as gross income. If the individualꦰ also owned rental property and earned $1,000 a month in rent, ordinary income would increase to $48,0𒆙00 per year ($36,000 plus $12,000).

Tip

澳洲幸运5开奖号码历史查询:Deductions can reduce the amount of ordinary income subject to tax.

Businesses

A company’s ordinary income is the pretax profit gained from selling its products or services. Retailer Target made $107.4 billion in total revenue in its fiscal year (FY) ending Feb. 3, 2024. However, those sales cost money to generate.

The company stated that its 澳洲幸运5开奖号码历史查询:cost of sales was $77.7 billion. Target also spent $21.5 billion on selling, general, and administrative expenses (SG&As). Factor in depreciation and amortization, and ordinary income or 澳洲幸运5开奖号码历史查询:operating income totaled $5.7 billion, the amount of income subject to taxation.

Dividends and Taxes

Most 澳洲幸运5开奖号码历史查询:stock dividends on long-term investments are subject to a lower rate than that for ordinary income.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) reduced the tax on most dividend income and some capital gains to 15%. This change prompted companies to increase or pay dividends instead of holding onto their cash.

In 2017, President Donald Trump signed the 澳洲幸运5开奖号码历史查询:Tax Cuts and Jobs Act (TCJA) into law, which changed the tax rate on 澳洲幸运5开奖号码历史查询:qualified dividends to 0%, 15%, or 20%, based on an individual’s taxable income and filing status.

Unqualified dividends include those paid out by 澳洲幸运5开๊奖号码历史查询:real estate investment trusts (REITs), income paid on employ♎ee stock options (ESOs), and dividends paid by tax-exempt companies and on savings accounts or money market accounts.

Regular dividends paid out to shareholders of for-profit companies usually qualify for taxation at the reduced capital gains rate, but investors must adhere to minimum 澳洲幸运5开奖号码历史查询:holding periods.

For 澳洲幸运5开奖号码历史查询:common stock, a share must be held for more than 60 days during the 121-day holding period that begins 60 days before the 澳洲幸运5开奖号码历史查询:ex-dividend date. For 澳洲幸运5开奖号码历史查询:preferred stock, the holding period is longer, beginning 90 days before the company’s ex-dividend date.

What Is Taxed As Ordinary Income?

Most of an individual’s income will be taxed at the regular marginal tax rates. There are 澳洲幸运5开奖号码历史查询:exceptions where income won't be taxed. These exceptions include long-term capital gains and qualified dividends, both taxed at more favorable rates.

Is Rent Ordinary Income?

Rental income is defined by the IRS as “any payment for the use or occupation of property” and is generally taxed as ordinary income. However, landlords can deduct certain costs from this income to reduce the taxable amount. Deductible expenses may include mortgage interest, property tax, repair costs, advertising, maintenance and cleaning, condo fees, and homeowners insurance.

Do Individuals Have to Report Interest Income?

Yes, they do. Most interest is taxed as ordinary income and subject to ordinary income tax rates. Notable exceptions include interest earned from a Series EE or Series I bond issued after 1989 to pay 澳洲幸运5开奖号码历史查询:qualified higher education expenses, interest on insurance dividends left on deposit with the U.S. Department of Veterans Affairs, and interest on some bonds used to finance government operations. However, even when it’s not taxable, interest must be reported.

The Bottom Line

Or𒁏dinary income is taxed at marginal rates. Individuals pay taxes on ordinary income such as salaries, tips, rent, and interest income. Businesses earn ordinary income from business operations while supplying goods and services.

Article Sources

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Internal Revenue Service. “,” Pages 5–7.
Internal Revenue Service. “.”
Target Corp. “,” Page 40 (Page 46 of PDF).
Congress.gov, U.S. Congress. “.”
Congress.gov, U.S. Congress. “.”
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