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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 were paid dividends in 2023, be aware, they aren’t free money — they’re usually taxable income. How and when you own an investment that pays them can dramatically change the dividend tax rate you pay.
There are many exceptions and unusual scenarios with special rules — see IRS Publication 550 for the details — but here’s generally how dividend tax works.
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Dividend tax rate
Dividend tax rate
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How are dividends taxed?
For tax purposes, there are two kinds of dividends: qualified and nonqualified (sometimes called "ordinary").
What is the dividend tax rate?
The tax rate on qualified dividends is 0%, 15% or 20%, depending on taxable income and filing status. The tax rate on nonqualified dividends follows ordinary income tax rates and brackets.
In both cases, people in higher tax brackets pay a higher dividend tax rate.
» MORE: See which tax bracket you're in
What are qualified and nonqualified dividends?
Qualified dividends come with the tax advantage of a lower tax rate. Three things usually determine whether a dividend is qualified:
1. It is paid by a U.S. corporation or 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 on 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 tax at the higher, nonqualified rate. Again, remember that there are many exceptions — see IRS Publication 550 for the details.
» MORE: See our list of the best online brokerages for dividend investing
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Dividend tax rate 2023
These are the rates that apply to qualified dividends, based on taxable income, for the 2023 tax year (taxes filed in April 2024).
0% tax rate | 15% tax rate | 20% tax rate | |
|---|---|---|---|
Single | $0 to $44,625. | $44,626 to $492,300. | $492,301 or more. |
Married, filing jointly | $0 to $89,250. | $89,251 to $553,850. | $553,851 or more. |
Married, filing separately | $0 to $44,625. | $44,626 to $276,900. | $276,901 or more. |
Head of household | $0 to $59,750. | $59,751 to $523,050. | $523,051 or more. |
Dividend tax rate 2024
These are the rates that apply to qualified dividends, based on taxable income, for the 2024 tax year (taxes filed in April 2025).
Tax-filing status | 0% tax rate | 15% tax rate | 20% tax rate |
|---|---|---|---|
Single | $0 to $47,025. | $47,026 to $518,900. | $518,901 or more. |
Married, filing jointly | $0 to $94,050. | $94,051 to $583,750. | $583,751 or more. |
Married, filing separately | $0 to $47,025. | $47,026 to $291,850. | $291,851 or more. |
Head of household | $0 to $63,000. | $63,001 to $551,350. | $551,351 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 — or sometimes a Schedule K-1 — 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.
» MORE: Learn more about different types of Form 1099
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 tax preparer or a tax 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 IRA accounts
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Now, let's dive into the concepts mentioned in this article.
Dividend Tax Rate
The dividend tax rate refers to the percentage of tax that individuals must pay on the dividends they receive from investments. There are two types of dividends for tax purposes: qualified and nonqualified (also known as ordinary) dividends. The tax rate on qualified dividends can be 0%, 15%, or 20%, depending on the individual's taxable income and filing status. On the other hand, the tax rate on nonqualified dividends follows the ordinary income tax rates and brackets. It's important to note that individuals in higher tax brackets generally pay a higher dividend tax rate.
Qualified and Nonqualified Dividends
Qualified dividends come with the tax advantage of a lower tax rate. To determine whether a dividend is qualified, three factors are usually considered:
- The dividend is paid by a U.S. corporation or qualifying foreign entity.
- The dividend is recognized as a dividend by the IRS. Certain payments, such as insurance company premiums, credit union distributions, and dividends from tax-exempt organizations or co-ops, do not count as qualified dividends.
- The individual held the underlying security for a sufficient period. Typically, if the individual owned the security for more than 60 days during the 121-day period that began 60 days before the ex-dividend date, the dividend is usually qualified. Preferred stock may have special rules.
If an individual does not hold the shares long enough, the IRS may deem them nonqualified, and the individual will pay tax at the higher, nonqualified rate. It's important to consult IRS Publication 550 for specific details and exceptions.
Reporting Dividend Income on Taxes
After the end of the year, individuals receive a Form 1099-DIV or a Schedule K-1 from their broker or any entity that sent them at least $10 in dividends and other distributions. The Form 1099-DIV indicates the amount paid and whether the dividends were qualified or nonqualified. This information is used to fill out the tax return. Individuals may also need to fill out a Schedule B if they received more than $1,500 in dividends for the year. Even if the dividends were automatically reinvested to buy more shares, they still need to be reported. Dividends from investments sold during the year also need to be reported.
Controlling Dividend Tax Bill
There are a few strategies individuals can use to control their dividend tax bill:
- Watch the calendar: Holding investments for the minimum required period (usually 61 days) can result in a lower dividend tax rate.
- Set cash aside: Unlike paychecks, dividends are not usually subject to withholding taxes. Individuals may need to pay estimated taxes throughout the year. Tax software or qualified tax professionals can help calculate the amount and timing of estimated tax payments.
- Consider using a retirement account: Owning dividend-paying investments inside a retirement account can provide tax advantages, such as tax deferral or tax-free growth. However, the type of retirement account and the timing of withdrawals can affect the tax treatment of dividends.
Please note that the information provided here is based on general knowledge and may not cover all possible scenarios or exceptions. It's always a good idea to consult with a tax professional or refer to IRS publications for specific guidance.
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