What Is a Qualified Dividend?
In plain English
A qualified dividend is a dividend payment that meets specific IRS requirements and is taxed at the preferential long-term capital gains rate (0%, 15%, or 20%) instead of the higher ordinary income rate. Most dividends from U.S. corporations and qualified foreign corporations are eligible.
What Makes a Dividend Qualified?
Two main requirements must be met: the dividend must be paid by a U.S. corporation or qualified foreign corporation, and the shareholder must hold the stock for a minimum holding period — more than 60 days during the 121-day window centered on the ex-dividend date. Dividends from REITs, money market funds, and most MLPs are generally not qualified.
How Are Qualified Dividends Taxed?
Qualified dividends receive the same tax rates as long-term capital gains: 0% for taxable income in the lowest brackets, 15% for most taxpayers, and 20% for high earners. An additional 3.8% Net Investment Income Tax may apply above certain income thresholds. These rates are significantly lower than ordinary income rates.
How Do Qualified Dividends Appear on Your Tax Return?
Your brokerage reports qualified dividends on Form 1099-DIV, Box 1b. They also appear in Box 1a (total ordinary dividends). When filing Form 1040, qualified dividends flow to the Qualified Dividends and Capital Gain Tax Worksheet, which calculates the preferential rate automatically.
Frequently asked questions
Are all stock dividends qualified?
No. You must meet the holding period requirement, and certain entities like REITs, cooperatives, and tax-exempt organizations pay non-qualified dividends. Your 1099-DIV clearly separates qualified from non-qualified amounts.
Do qualified dividends count toward adjusted gross income?
Yes. Qualified dividends are included in AGI and total income. However, they are separated on the tax return and taxed at the lower capital gains rate rather than your ordinary income rate.
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Related terms
Non-Qualified Dividend
A non-qualified (ordinary) dividend is taxed at your regular income tax rate rather than the lower capital gains rate applied to qualified dividends.
Capital Gains Tax
Capital gains tax applies to profits from selling assets like stocks, real estate, or collectibles. The rate depends on how long you held the asset and your total income.
Tax Bracket
Tax brackets are the income ranges at which different marginal rates apply under the U.S. progressive tax system. Only income within each bracket is taxed at that bracket's rate.
Adjusted Gross Income (AGI)
Adjusted gross income is your total income minus specific above-the-line deductions. It is the key figure on your tax return that determines eligibility for many credits, deductions, and financial programs.
Dividend
A dividend is a portion of a company's profits paid out to shareholders, typically on a quarterly basis. Dividends provide investors with regular income in addition to any stock price appreciation.