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Qualified Dividends

In short

Dividends that qualify for lower long-term capital gains tax rates

Most dividends from US companies held long enough are 'qualified' and taxed at the low capital gains rate (0-20%) instead of ordinary income rates. Non-qualified dividends (like REITs) are taxed as regular income.

Qualified dividends meet IRS holding period requirements (held 60+ days around the ex-dividend date) and come from US corporations or qualified foreign corporations. They're taxed at 0%, 15%, or 20% — the same preferential rates as long-term capital gains.

Related concepts

  • Dividend Yield — If a stock trades at $100 and pays $3 a year in dividends, the yield is 3% — similar to the interest rate on a savings account, but for a stock. Because yield is dividends divided by price, it also rises whenever the stock price falls, even if the dividend itself hasn't grown at all.
  • Long-Term Capital Gains — Hold a stock for more than a year before selling and you get a special lower tax rate — 0%, 15%, or 20% depending on your income. That's much better than paying your regular income tax rate on short-term gains.
  • Tax Bracket — The US has a progressive tax system. You don't pay the top rate on all your income — just on each dollar above specific thresholds. Knowing your bracket helps you understand if gains will be taxed short-term or long-term preferential rates.
  • Short-Term Capital Gains — If you buy a stock and sell it within a year for a profit, the IRS taxes that gain at your regular income tax rate (up to 37%). That's much higher than the 15-20% rate for stocks held longer than a year.