Ordinary income definition

What is Ordinary Income for an Individual?

For an individual, ordinary income is most earnings other than long-term capital gains. These earnings include wages and salaries, as well as bonuses, tips, commissions,  interest income, and short-term capital gains. Ordinary income is taxed at the highest tax rate. This type of income can be offset with standard tax deductions to arrive at taxable income for the individual.

What is Ordinary Income for a Business?

For a business, ordinary income is the income from continuing operations before income taxes, excluding discontinued operations and the cumulative effect of changes in accounting principles. This is essentially the income generated by the core activities of a business, so outside analysts tend to focus on this number in order to discern the true underlying performance of a business.