Ordinary income is income that is taxable at ordinary rates and is reported on an individual's or a business’s income tax return. For most individuals and businesses, ordinary income refers to the salary, wages, rents, bonuses, commissions, and other kinds of money earned during the year that is taxable at traditional income tax rates.

Ordinary income can come from sources such as a job or salary, wages from freelance work, royalties from intellectual property like artwork, short-term capital gains, dividends (if unqualified), and interest income from savings or investments. It is important to note that income from sources like Social Security, government benefits (such as unemployment insurance or supplemental security income), music royalties, and certain other forms of income are not subject to ordinary income tax.

For individuals, ordinary income is often classified into two main categories: earned income, or wages and salary, and unearned income, such as interest and dividend payments. Whether these incomes are taxable at ordinary rates depends on the taxpayer’s filing status and their income level.

For businesses, ordinary income covers the income generated from their day-to-day operations, such as product or service sales, rental payments received, and commissions. However, if a business sells stock, real estate, or other capital assets, the resulting income is typically not taxed as ordinary income.

In addition to income taxes, ordinary income is subject to payroll taxes. As such, businesses must withhold money from employee salaries and wages to pay for Social Security, Medicare, and federal and state income taxes. Employees will receive a W-2 form at the end of the year with information on how much they earned, taxes withheld, and other deductions they made.

The IRS requires taxpayers to report their ordinary income on Form 1040. There, taxpayers will indicate their filing status as well as wages, salaries, unearned income, state income taxes, deductions for self-employment tax, and other details about their income. Any earnings outside of ordinary income must also be reported and will be taxed at the corresponding rate.

Ordinary income is a key component of a taxpayer’s total income, as it is typically the most heavily taxed form of income. As such, being aware of the different forms of income that are considered taxable and understanding the associated tax rates and deductions can help individuals and businesses ensure that their taxes are paid accurately and on time.