Qualified Dividends
Dividends that meet IRS holding-period and company requirements, taxed at the lower long-term capital gains rates (0%, 15%, or 20%) instead of ordinary income rates.
Qualified dividends are dividends that meet specific IRS requirements and receive preferential tax treatment at long-term capital gains rates — 0%, 15%, or 20% depending on your taxable income — rather than being taxed as ordinary income.
To qualify, you must hold the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The dividend must be paid by a US corporation or a qualified foreign corporation. Most dividends from common stocks held in a regular brokerage account will be qualified if you meet the holding requirement.
Dividends from REITs, money market accounts, and certain foreign corporations generally do not qualify and are taxed as ordinary income. Your brokerage firm reports the split between qualified and ordinary dividends on Form 1099-DIV. For investors in higher tax brackets, the difference is significant — a qualified dividend taxed at 15% versus the same amount taxed at 35% as ordinary income.
Related Terms
Ordinary Dividends
Dividends that do not meet the requirements for qualified treatment. They are taxed at your regular income tax rate, which can be significantly higher than qualified dividend rates.
Long-Term Capital Gains
Profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income.
Net Investment Income Tax (NIIT)
A 3.8% surtax on investment income (interest, dividends, capital gains, rental income) for individuals with modified AGI above $200,000 (single) or $250,000 (married filing jointly).