Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.
