Ordinary income refers to any type of income taxed at the U.S. marginal tax rates. This includes wages, salaries, tips, and commissions, but excludes long-term capital gains and qualified dividends, both of which are taxed at more favorable rates.

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What is ordinary income?

Ordinary income traditionally refers to income from wages, salaries, tips, commissions, and interest income from bonds. However, there are several other types of income that are subject to taxation at ordinary income rates, as opposed to preferential tax rates that are applied to long-term capital gains and qualified dividends. Types of income taxed at the ordinary income tax rates currently include, but are not necessarily limited to:

  • Wages
  • Salaries
  • Tips
  • Commissions
  • Bonuses
  • Other employment compensation
  • Interest income
  • Income from a business
  • Rents/royalties (after certain allowances)
  • Short-term capital gains (held for a year or less)
  • Unqualified dividends (also known as ordinary dividends)

Long-term capital gains and qualified dividends are taxed at more preferential rates, ranging from 0% to 20%. Essentially, this is because the government wants to encourage Americans to be long-term investors. Long-term capital gains are profits made on investments held for over a year, while qualified dividends need to meet certain requirements, which you can read about here.

Ordinary income tax rates in 2017

As of this writing, there are several marginal tax rates (tax brackets) applied to ordinary income in the United States, ranging from 10% to 39.6%.

Marginal Tax Rate

Single

Married Filing Jointly

Head of Household

Married Filing Separately

10%

$0-$9,325

$0-$18,650

$0-$13,350

$0-$9,325

15%

$9,326-$37,950

$18,651-$75,900

$13,351-$50,800

$9,326-$37,950

25%

$37,951-$91,900

$75,901-$153,100

$50,801-$131,200

$37,951-$76,550

28%

$91,901-$191,650

$153,101-$233,350

$131,201-$212,500

$76,551-$116,675

33%

$191,651-$416,700

$233,351-$416,700

$212,501-$416,700

$116,676-$208,350

35%

$416,701-$418,400

$416,701-$470,700

$416,701-$444,550

$208,351-$235,350

39.6%

$418,401 and above

$470,701 and above

$444,551 and above

$235,351 and above

Data source: IRS.

It's important to note that the income figures in this chart refer to taxable income, not all ordinary income. Taxable income is calculated as ordinary income, minus all allowable deductions, exemptions, and credits.

For long-term capital gains and qualified dividend income, a 0% tax rate is applied to people who fall into the 10% and 15% tax brackets, a 20% tax rate is applied to people who fall into the top tax bracket, and a 15% rate is applied to taxpayers in the other four brackets.

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