What Are Qualified Dividends?

Ordinary dividends are payments a public company makes to the owners of its common stock shares. A qualified dividend is an ordinary dividend reported to the Internal R🀅evenue Service (IRS), taxed at capital gains tax rates.

Understanding Qualified Dividends

A dividend is considered qualified if the shareholder has held a stock for more than 60 days in the 121-day period that began 60 days before the 澳洲幸运5官方开奖结果体彩网:ex-dividend date. The ex-dividend date is one markꦗet day before the dividend’s record date. The record date is when a shareholder must be on the company’s books to receive the dividend.

For example, XYZ stock declares a dividend payment on Nov. 20 and sets a record date for a month later, with an ex-dividend date of Dec. 19. Those who bought XYZ stock before Dec. 19 and held it for at least 61 days in the 121-day period that began 60 days before the ex-dividend date pay the 澳洲幸运5官方开奖结果体彩网:capital gains tax rate on the dividend. Those who bought XYZ stock before Dec. 19 and received a dividend, but did not hold it for the required 61 days, would claim the dividend as ordinary income on their tax return for that year.

Capital Gains Tax Rates

Capital gains are taxed at 0%, 15%, or 20%, depending on the taxpayer’s income. Capital gains from selling collectibles or qualified small business stock may be up to 28%. Unrecaptured gains from selling Section 1250 real property are taxed up to 25%. Most investors pay zero or 15%, with only the highest earners paying the 20% rate.

IRS Form 1099-DIV, Box 1a, Ordinary Dividends, shows all taxpayer dividends. Qualified dividends are listed in Box 1b on Form 1099-DIV and are the portion of ordinary dividends from Box 1a that meet the criteria to be treated as qualified dividends. Qualified dividends must have been paid by a U.S. company or a qualifying foreign company, and the required dividend 澳洲幸运5官方开奖结果体彩网:holding period must have been met.

Qualified Dividends vs. Ordinary Dividends

Qualified and ordinary dividends have different tax implications that impact a return. The tax rate is 0% on qual🔯ified dividends if taxable income is less t🦩han $48,350 for singles and $96,700 for joint-married filers in the 2025 tax year.

Filers who make more than $48,351 individually or $96,701 jointly have a 15% tax rate on qualified dividends. For those with income that exceeds $533,401 for a single person or $600,051 for a married couple, the capital gains tax rate is 20%.

There is an additional 3.8% net investment income tax (NIIT) on investment gains or income. To determine this tax, the IRS uses the lowest figure of 澳洲幸运5官方开奖结果体彩网:net investment income (NII) or the excess of the 澳洲幸运5官方ꦚ开奖结果体彩网:modified adjusted gross inco෴me (MAGI) that exceeds $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately.

What It Means for Investors

Most regular dividends from U.S. corporations are considered qualified, but there are considerations for foreign companies, real estate investment trusts (REITs), master limited partnerships (MLPs), or tax-exempt companies. A foreign corporation qualifies for the special tax treatment if the company is incorporated in the United States, the corporation is eligible for the benefits of a comprehensive income tax treaty with the U.S., or the stock is readily tradable on an established securities market in the U.S. A foreign corporation is not qualified if considered a 澳洲幸运5官方开奖结果体彩网:passive foreign investment company.

Some dividends are automatically exempt from consideration as qualified dividends. These include dividends paid by 澳洲幸运5官方开▨奖结果体彩网:real estate investment trusts (REITs), 澳洲幸运5官方开奖结果体彩网:master limited partnerships (MLPs), employee stock options, and those on tax-exempt companies. Dividends paid from 澳洲幸运5官方开奖结果体彩网:money market accounts, such as deposits in savings banks, credit unions, or other financial institutions, do not qualify and should be reported as interest income.

Special one-time dividends are also unqualified, and qualified dividends must come from shares🔯 not associated with hedging, such as those used for short sales, puts, and call options. These investments and distributions are subject to the ordinary income tax rate.

The Bottom Line

For most individual investors, qualified dividends offer the chance𒆙 of a tax break. The dividends of most American companies are qualified dividends. The investor’s only concern should be to qualify for the lower capital gains tax rate by purchasing shares before the ex-dividend date ♛and holding them for more than 60 days.