Query: How are various types of income taxed differently in the USA?

Relevant passages:
 <=SEP=> "Long-term capital gains, which is often the main element of investment income for investors who are not high-frequency day traders, are taxed at a single rate that is often substantially below the marginal rate they would otherwise be taxed at, particularly for wealthy individuals. There are a few rationales behind this treatment; the two most common are that the government wants to encourage long-term investments (as opposed to short-term speculation), and that capital gains are a kind of double taxation (from one point of view) as they are coming from income that has already been taxed once before (as wage or ordinary income).  The latter in particular is highly controversial, but this is one of the more divisive political issues in the taxation front - one party would eliminate the tax entirely, the other would eliminate the difference. For most individuals, the majority of their long-term capital gains are taxed at 15% up to almost half of a million dollars total AGI, which is a fairly low rate - it's equivalent to the rate a taxpayer would pay on up to $37,000 in wage income (after deductions/exemptions/etc.).  You can see from this table in Wikipedia that it is much preferred to pay long-term capital gains rates when possible - at every point it's at least 10% lower than the tax rate for ordinary income. Ordinary income includes wages and many other sources of income - basically, anything that is not long term capital gains. Wage income is taxed at this rate, and also subject to some non-income-tax taxes (FICA and Medicare in particular); other sources of ordinary income are not subject to those taxes (including IRA income).  Short term capital gains are generally included in this bucket. Qualified Dividends are treated similarly to long-term capital gains (as they are of a similar nature), and taxed accordingly. The ""Net Investment Tax"" is basically applying the Medicare tax to investment income for higher-income taxpayers ($125k single, $250k joint).  It's on top of capital gains rates for them.  It came about through the Affordable Care Act, and is one of the first provisions likely to be repealed by the new Congress (as it can be repealed through the budgeting provision).  It seems likely that 2017 taxes will not contain this provision."

 <=SEP=> "Many individual states, counties, and cities have their own income taxes, payroll taxes, sales taxes, property taxes, etc., you will need to consult your state and local government websites for information about additional taxes that apply based on your locale. Wages, Salaries, Tips, Cash bonuses and other taxable employee pay, Strike benefits, Long-term disability, Earnings from self employment Earned income is subject to payroll taxes such as: Earned income is also subject to income taxes which are progressively higher depending on the amount earned minus tax credits, exemptions, and/or deductions depending on how you file. There are 7 tax rates that get progressively larger as your income rises but only applies to the income in each bracket. 10% for the first 18,650 (2017) through 39.6% for any income above 470,700. The full list of rates is in the above linked article about payroll taxes. Earned income is required for contributions to an IRA. You cannot contribute more to an IRA than you have earned in a given year. Interest, Ordinary Dividends, Short-term Capital Gains, Retirement income (pensions, distributions from tax deferred accounts, social security), Unemployment benefits, Worker's Compensation, Alimony/Child support, Income earned while in prison, Non-taxable military pay, most rental income, and S-Corp passthrough income Ordinary income is taxed the same as earned income with the exception that social security taxes do not apply. This is the ""pure taxable income"" referred to in the other linked question. Dividends paid by US Corporations and qualified foreign corporations to stock-holders (that are held for a certain period of time before the dividend is paid) are taxed at the Long-term Capital Gains rate explained below. Ordinary dividends like the interest earned in your bank account are included with ordinary income.  Stocks, Bonds, Real estate, Carried interest -- Held for more than a year Income from assets that increase in value while being held for over a year. Long term capital gains justified by the idea that they encourage people to hold stock and make long term investments rather than buying and then quickly reselling for a short-term profit.  The lower tax rates also reflect the fact that many of these assets are already taxed as they are appreciating in value. Real-estate is usually taxed through local property taxes. Equity in US corporations realized by rising stock prices and dividends that are returned to stock holders reflect earnings from a corporation that are already taxed at the 35% Corporate tax rate. Taxing Capital gains as ordinary income would be a second tax on those same profits. Another problem with Long-term capital gains tax is that a big portion of the gains for assets held for multiple decades are not real gains. Inflation increases the price of assets held for longer periods, but you are still taxed on the full gain even if it would be a loss when inflation is calculated. Capital gains are also taxed differently depending on your income level. If you are in the 10% or 15% brackets then Long-term capital gains are assessed at 0%. If you are in the 25%, 28%, 33%, or 35% brackets, they are assessed at 15%. Only those in the 39.6% bracket pay 20%. Capital assets sold at a profit held for less than a year Income from buying and selling any assets such as real-estate, stock, bonds, etc., that you hold for less than a year before selling. After adding up all gains and losses during the year, the net gain is taxed as ordinary income. Collectibles held for more than a year are not considered capital assets and are still taxed at ordinary income rates."