Q: What is a Qualified Dividend?
Ans: A qualified dividend is a type of dividend income that is taxed at the lower long-term capital gains rates instead of the higher ordinary income tax rates. To be classified as qualified, the dividend must be paid by a U.S. corporation or a qualified foreign company, and the investor must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.
Key Benefit:
Qualified dividends are taxed at 0%, 15%, or 20%, depending on your income bracket, much lower than ordinary income tax rates.
The IRS classifies a dividend as qualified if it meets specific holding period and source requirements (more on that shortly).
Qualified vs. Ordinary Dividend
Ordinary dividends are the default classification. They are taxed at your ordinary income tax rate, which can be as high as 37%.
| Feature | Qualified Dividend | Ordinary Dividend |
|---|---|---|
| Tax Rate (2025) | 0%, 15%, or 20% | 10% – 37% |
| Holding Period Requirement | Yes (60+ days in 121-day window) | No |
| Typical Sources | U.S. corporations, blue-chip stocks | REITs, MLPs, money market funds |
Qualified Dividend Tax Rates in 2025
Depending on your income level, you’ll pay one of the following federal tax rates on qualified dividends in 2025:
- 0%: Income up to $47,025 (single) or $94,050 (married filing jointly)
- 15%: Income between $47,026 and $518,900 (single) or $94,051 and $583,750 (married)
- 20%: Income above those thresholds
⚠️ Medicare Surtax: High earners may owe an extra 3.8% Net Investment Income Tax (NIIT).
Requirements for a Dividend to Be “Qualified”
To be considered a qualified dividend, all the following must apply:
- The stock must be issued by a U.S. company or a qualified foreign corporation
- Holding Period: You must hold the stock for more than 60 days during the 121 days starting 60 days before the ex-dividend date
- Dividend must be from earnings/profits, not a return of capital
Examples of Qualified Dividends
Most dividends from these types of companies typically qualify:
- Apple (AAPL)
- Coca-Cola (KO)
- Johnson & Johnson (JNJ)
Your broker will label dividends as “qualified” on your Form 1099-DIV, Box 1b.
Common Exceptions (Not Qualified)
These investments usually pay non-qualified dividends:
- Real Estate Investment Trusts (REITs)
- Master Limited Partnerships (MLPs)
- Certain mutual funds or preferred shares
These are taxed at ordinary income rates.
How to Check If a Dividend is Qualified or Not?
- Form 1099-DIV: Look at Box 1b for “qualified dividends”
- Brokerage Statements: Most platforms flag qualified dividends
- IRS Publication 550: Official resource for dividend tax rules
FAQs
Q: What makes a dividend “qualified”?
A: The dividend must come from a U.S. or qualified foreign corporation, meet the holding period requirement, and be paid from earnings or profits.
Q: Are qualified dividends taxed twice?
A: No. While corporations pay taxes on profits before issuing dividends, you only pay tax once, at the reduced qualified rate if eligible.
Q: Do ETFs pay qualified dividends?
A: Some do. It depends on the fund’s holdings and how long you’ve held the ETF. Your 1099-DIV will show the qualified portion.