How Are Dividends Taxed? Qualified and Nonqualified Dividend Tax Rates
How and when you own an investment that pays dividends can dramatically change the tax rate you pay.
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- How dividends are taxed depends on your income, filing status and whether the dividend is qualified or nonqualified.
- Qualified dividends are taxed at 0%, 15% or 20% depending on taxable income and filing status. Nonqualified dividends are taxed as income at rates up to 37%.
- IRS form 1099-DIV helps taxpayers to accurately report dividend income.
If you're an investor, you might be familiar with dividends, which are shares of a company’s profits that are distributed to shareholders. But if you are paid dividends, be aware they aren’t free money — they’re usually taxable income.
There are many exceptions and unusual scenarios with special rules, but here’s generally how dividend tax works.
How are dividends taxed?
For tax purposes, there are two kinds of dividends: qualified and nonqualified (sometimes called "ordinary").
The tax rate on nonqualified dividends follows ordinary income tax rates and brackets (see which tax bracket you're in). Qualified dividends come with the advantage of lower tax rates: 0%, 15% or 20%, depending on taxable income and filing status
In both cases, people in higher tax brackets pay a higher dividend tax rate.
What are qualified dividends?
Three things usually determine whether a dividend is qualified:
1. It is paid by a U.S. corporation or a qualifying foreign entity. For many investors, this condition is easy to satisfy.
2. It is actually a dividend in the eyes of the IRS. Some things don’t count as dividends, including:
- Premiums that an insurance company pays back.
- Annual distributions credit unions make to members.
- “Dividends” from co-ops or tax-exempt organizations.
3. You held the underlying security for long enough. The definition of "enough" gets a little tricky, but typically, if you owned the security for more than 60 days during the 121-day period that began 60 days before the ex-dividend date — that is, the day by when you must own the stock to receive the dividend — the dividend is usually qualified. (Preferred stock has special rules.)
Here's an example. If your Ford shares paid a dividend Sept. 1 and the ex-dividend date was July 20, you would need to have owned your shares for at least 61 days between May 21 and Sept. 19. And when you count the days, include the day you sold the shares, but not the day you bought them.
If you don’t hold the shares long enough, the IRS might deem them nonqualified, and you’ll pay the higher, nonqualified tax rate. Again, remember that there are many exceptions — see IRS Publication 550 for the details
Dividend tax rate 2024
Qualified dividend tax rates are based on your taxable income. For the 2024 tax year (taxes that were due on April 15, 2025, or by October 15, 2025, with an extension), qualified dividends have a 0% tax rate for taxable incomes up to:
- $47,025 for single filers/those married filing separately.
- $94,050 for those married filing jointly.
- $63,000 for heads of household.
A 15% or 20% tax rate may apply to incomes over this limit.
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 0% | $0 to $47,025 | $0 to $94,050 | $0 to $47,025 | $0 to $63,000 |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 | $47,026 to $291,850 | $63,001 to $551,350 |
| 20% | $518,901 or more | $583,751 or more | $291,851 or more | $551,351 or more |
| Short-term capital gains are taxed as ordinary income according to federal income tax brackets. | ||||
» Estimate your dividend stock returns: NerdWallet's dividend calculator.
Dividend tax rate 2025
For the 2025 tax year (taxes due in 2026), qualified dividends have a 0% tax rate for taxable incomes up to:
- $48,350 for single filers/those married filing separately.
- $96,700 for those married filing jointly.
- $64,750 for heads of household.
A 15% or 20% tax rate may apply to incomes over this limit.
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 0% | $0 to $48,350 | $0 to $96,700 | $0 to $48,350 | $0 to $64,750 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 | $48,350 to $300,000 | $64,751 to $566,700 |
| 20% | $533,401 or more | $600,051 or more | $300,001 or more | $566,701 or more |
| Short-term capital gains are taxed as ordinary income according to federal income tax brackets. | ||||
How to report dividend income on your taxes
- After the end of the year, you’ll receive a Form 1099-DIV from your broker or any entity that sent you at least $10 in dividends and other distributions. The 1099-DIV indicates what you were paid and whether the dividends were qualified or nonqualified.
- You use this information to fill out your tax return. You might also need to fill out a Schedule B if you received more than $1,500 in dividends for the year
. - Even if you didn’t receive a dividend in cash — let’s say you automatically reinvested yours to buy more shares of the underlying stock, such as in a dividend reinvestment plan (DRIP) — you still need to report it.
- You also need to report dividends from investments you sold during the year.
How to control your dividend tax bill
Watch the calendar
You could pay a lower dividend tax rate by holding your investments for the 61-day minimum. Just be sure that doing so aligns with your investment objectives.
Set cash aside
Your employer withholds taxes from your paycheck and sends them to the IRS on your behalf, but there’s usually nobody doing the same with your dividends. You may need to pay estimated taxes throughout the year. Your tax software or a qualified tax pro, such as a local CPA, can help calculate how much that is and when to pay.
» Dive deeper: See our picks for the best tax software
Consider using a retirement account
- Owning dividend-paying investments inside a retirement account could shelter dividends from taxes or defer taxes on them. Think ahead, though. Do you need the income now?
- Also, the type of retirement account matters when it comes to determining the tax bill. When you eventually withdraw money from a traditional IRA, for example, it may be taxed at your ordinary income tax rate rather than at those lower qualified dividend tax rates.
» Ready to browse? Our picks for this year's best IRAs
Frequently Asked Questions
Are dividend reinvestment plans (DRIPs) taxed?
Yes. DRIPS are still considered income, even though you did not receive that income in cash. If you have a DRIP that allows you to purchase shares at a discount using reinvested dividends, you must report the fair market value of those shares as income on your tax return.
Are mutual fund dividends taxed?
Yes, mutual funds that pay dividends generate the same tax liability for shareholders as stocks that pay dividends.
When it comes to mutual funds, one thing to be aware of is the difference between dividends and capital gains distributions. The latter are payments of profits to mutual fund shareholders. They're taxed slightly differently, but they'll both be shown on your Form 1099-DIV.
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- 1. Internal Revenue Service. Publication 550, Investment Income and Expenses. Accessed Sep 24, 2024.
- 2. Internal Revenue Service. About Publication 550, Investment Income and Expenses. Accessed Sep 24, 2024.
- 3. Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends. Accessed Sep 24, 2024.
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