Qualified vs ordinary dividends (US tax basics)
In the United States, not every dividend is taxed the same way. Dividends are either qualified or ordinary (also called non-qualified), and the difference can change how much of each payment you keep.
Qualified dividends
Qualified dividends are taxed at the long-term capital gains rates, which are lower than the rates on regular income. They generally come from US companies and many foreign companies that meet IRS requirements, and the shares must meet a holding period.
Ordinary dividends
Ordinary dividends are taxed at your normal income tax rate. Many dividends from real estate investment trusts (REITs), money market funds, and some funds and ETFs fall into this group, as do dividends on shares you did not hold long enough.
The holding period rule
For common stock, you generally must hold the shares for more than 60 days during the 121-day window that starts 60 days before the ex-dividend date. Buying right before the ex-dividend date and selling soon after usually means the dividend is ordinary, not qualified.
- Your broker's year-end tax form (Form 1099-DIV) shows the split between ordinary and qualified dividends.
- Tax-advantaged accounts such as IRAs usually do not tax dividends year to year, so the distinction matters less there.
- Dividends from foreign companies may also have foreign tax withheld.
Frequently asked questions
Are all dividends qualified dividends?
No. Dividends must come from an eligible company and meet the holding period to be qualified. REIT dividends and many fund distributions are commonly ordinary.
How do I know which dividends I received were qualified?
Your broker reports the amounts in Form 1099-DIV after year end, split into ordinary and qualified dividends.
Does holding period matter if I use an IRA?
In most retirement accounts dividends are not taxed each year, so the qualified or ordinary split typically does not apply the same way. Check the rules for your account type.
Keep reading
- What is an ex-dividend date?
- REIT dividends: why yields are higher
- Dividend capture strategy: does it work?
General education only, not investment, tax or legal advice. Rules can differ by country and security.