We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is Ordinary Income?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 14,265
Share

Ordinary income is any type of income that is considered taxable at the highest rates currently in place. Income of this type includes wages and salaries, any type of commissions that are received in addition to wages and salaries, or any type of interest income that is generated from bond issues or savings accounts. Dividends from other types of investments are often classified as ordinary income. When filing income tax returns, the taxation on the ordinary income generated during the period is offset by any standard tax deductions currently allowed.

In order to properly calculate the amount of ordinary income that is subject to taxation, all types of wages or salaries are included in the total figure earned for the tax period. For people who work for an employer, this is usually handled automatically, with state and federal taxes withheld for the employee and forwarded to the correct tax agency. For people who set up a sole proprietorship, any payments received from their clients is often treated as ordinary income. Depending on the laws relating to the collection of taxes, the individual who is self-employed may need to track income and remit taxes on a monthly, quarterly, or semi-annual basis. In some nations, people who are self-employed and generate under a certain amount of ordinary income may be allowed to make an annual tax payment, without incurring any type of penalties.

When filing an annual tax return, the total amount of taxable ordinary income is reduced by any of the standard deductions allowed by that tax agency. In some cases, these standard deductions are sufficient to reduce the overall tax burden significantly. For people who generate a smaller amount of income during the calendar year, the deductions may be sufficient to lower the taxable income amount to the point that they qualify for a tax refund. People who generate a higher amount of income and do not have much in the way of qualifying deductions may find that they owe additional taxes at the time the return is filed, if sufficient withholding did not take place during the time period covered by the return.

In extremely rare situations, any income that is identified as capital gains may be treated as ordinary income for purposes of taxation. This is sometimes the case when short term capital gains are involved. Since tax laws vary from one country to the next, it is important to check with tax authorities who can evaluate the nature of the gain and advise the taxpayer on whether it is subject to the usually lower capital gains tax or the higher ordinary income tax.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-is-ordinary-income.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.