Ordinary Income Law and Legal Definition
Ordinary income is all income that is subject to ordinary tax treatment by the Internal Revenue Service (IRS). It is income other than capital gains. Wages, interest, dividends, and net income from a business are examples of ordinary income. Investments often produce ordinary income. Examples of ordinary income include interest and rent. Many investments--including savings accounts, certificates of deposit, money market accounts, annuities, bonds, and some preferred stock--can generate ordinary income.
Dividends received from investments may be treated as ordinary income, being taxable at the applicable rate, or may be treated as a capital gain. Ordinary income is taxed at ordinary (as opposed to capital gains) tax rates. It is an important distinction for tax purposes because capital gains are taxed at a different rate.