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.
How it works
Qualified dividends are dividends that meet specific IRS holding-period and payer requirements, which earns them the same preferential tax rates as long-term capital gains — 0%, 15%, or 20% — instead of being taxed as ordinary income. The distinction exists so investors holding stock for genuine investment purposes, rather than trading around dividend dates, get the tax break intended for long-term investment income.
To qualify, you generally must hold the underlying stock for more than 60 days during the 121-day window that begins 60 days before the stock's ex-dividend date, and the dividend must come from a US corporation or a qualifying foreign corporation. Your brokerage reports the qualified portion separately on Form 1099-DIV, Box 1b, which is a subset of the total ordinary dividends shown in Box 1a, and that figure flows to the Qualified Dividends and Capital Gain Tax Worksheet when you file.
Most dividends from common stock held in an ordinary brokerage account end up qualified simply because typical buy-and-hold investors easily clear the 60-day holding requirement without trying. Dividends from REITs, dividends on stock held through certain options strategies, and payments from money market funds generally do not qualify and end up taxed as ordinary income instead, even when they show up in the same brokerage statement as your qualified dividends. Actively trading around ex-dividend dates — buying just before and selling just after to capture a payout — is a common way investors accidentally disqualify a dividend from the preferential rate.
Example: qualified vs. ordinary tax treatment
An investor receives a $5,000 dividend from a stock they've held for two years, comfortably clearing the 60-day requirement. Because the dividend is qualified, it's taxed at the long-term capital gains rate that applies to their income, say 15%, for a tax bill of $750.
Had the same $5,000 instead been an ordinary, non-qualified, dividend, it would be taxed at their full ordinary rate of 35%, producing a $1,750 tax bill, more than double, purely because of how the dividend was classified.
Frequently asked questions
How do I know if my dividends are qualified?
How long do I need to hold a stock for its dividend to be qualified?
Do REIT dividends count as qualified dividends?
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).