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Tax Planning

Qualified vs. Ordinary Dividends: Tax Rates and Holding Periods

Qualified dividends are taxed at 0%, 15%, or 20%; ordinary dividends at regular rates up to 37%. Holding period and payer determine which applies.

Qualified vs. Ordinary Dividends: Tax Rates and Holding Periods

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What is the difference between qualified and ordinary dividends?

  • Qualified dividends are taxed at the long-term capital gains rates of 0%, 15%, or 20%.
  • Ordinary, or nonqualified, dividends are taxed at regular income rates of up to 37%.
  • A dividend is qualified only if it comes from an eligible corporation and the shareholder meets a holding period.
  • Form 1099-DIV reports total ordinary dividends in box 1a and the qualified portion in box 1b.
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Full Guide

What is the difference between qualified and ordinary dividends?

  • Qualified dividends are taxed at the long-term capital gains rates of 0%, 15%, or 20%.
  • Ordinary, or nonqualified, dividends are taxed at regular income rates of up to 37%.
  • A dividend is qualified only if it comes from an eligible corporation and the shareholder meets a holding period.
  • Form 1099-DIV reports total ordinary dividends in box 1a and the qualified portion in box 1b.

What are the 2026 rates for qualified dividends?

  • The 0% rate applies to taxable income up to $49,450 single or $98,900 joint.
  • The 15% rate applies up to $545,500 single or $613,700 joint, and 20% above that.
  • The 3.8% net investment income tax can apply on top, above $200,000 single or $250,000 joint MAGI.
  • Qualified dividends stack on top of ordinary income when determining the rate.

What holding period is required?

  • Common stock must be held more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.
  • For certain preferred stock dividends covering periods over 366 days, the requirement is more than 90 days in a 181-day period.
  • Days when the position's risk of loss is reduced, such as through certain hedges or short sales, may not count.
  • Fund shareholders must meet the holding period on their fund shares, and the fund must meet it on its holdings.

Which dividends are never qualified?

  • Most REIT dividends are nonqualified, though they can be eligible for the 20% Section 199A deduction, which the 2025 law made permanent.
  • Money market fund dividends, and bank or credit union deposit "dividends," are taxed as ordinary income.
  • Dividends from tax-exempt organizations and payments in lieu of dividends on loaned shares do not qualify.
  • Foreign company dividends qualify only if the company is in a treaty country, is readily tradable on a U.S. market, or meets other tests.

How do dividends interact with account type?

  • Dividend character matters only in taxable accounts; inside IRAs and 401(k)s, withdrawals follow the account's own rules.
  • Holding high-ordinary-income investments in tax-deferred accounts and qualified-dividend payers in taxable accounts is one asset-location approach.
  • Asset location can conflict with diversification, rebalancing, and liquidity needs, so the trade-offs matter.
  • Reinvested dividends are still taxable in the year paid and add to the investment's basis.

Key takeaways

  • Qualified dividends get 0%, 15%, or 20% rates; ordinary dividends are taxed at up to 37%.
  • Holding common stock more than 60 days in the 121-day window around the ex-dividend date is required.
  • REIT, money market, and certain foreign dividends are commonly nonqualified.
  • Check Form 1099-DIV and confirm treatment with a CPA.
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