Qualified Dividend
A dividend that meets IRS requirements to be taxed at the lower long-term capital gains rates of 0%, 15%, or 20%, rather than as ordinary income.
Qualified dividends enjoy the same preferential tax rates as long-term capital gains, making them highly attractive from a tax-efficiency standpoint. For a dividend to be 'qualified' under IRS rules, it must be paid by a U.S. corporation or a qualified foreign corporation (one whose stock trades on a U.S. exchange or that is incorporated in a country with a U.S. tax treaty), and the investor must meet a minimum holding period requirement.
The holding period rule requires that you hold the underlying stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. For preferred stock, the requirement extends to more than 90 days during a 181-day window. If you acquire shares shortly before the ex-dividend date and sell them shortly after collecting the dividend, you have likely not satisfied the holding period and the dividend will be ordinary, not qualified.
For 2025, qualified dividends are taxed at 0% for single filers with taxable income up to $48,350 and joint filers up to $96,700 — meaning many middle-income investors pay nothing on qualified dividend income. The 15% rate applies across the broad middle-income range, and the 20% rate applies only to the highest earners. High-income taxpayers also owe the 3.8% Net Investment Income Tax on qualified dividends when MAGI exceeds $200,000 (single) or $250,000 (joint).
Not all dividends qualify. Dividends paid by REITs, money market funds, and certain foreign corporations typically do not meet the requirements and are taxed as ordinary income. Dividends received in tax-advantaged accounts like IRAs are not currently taxed regardless of their qualified or ordinary status, though ordinary income tax applies upon withdrawal from traditional accounts.
Brokers report qualified and ordinary dividends separately on Form 1099-DIV: box 1a shows total ordinary dividends (which includes qualified dividends), and box 1b breaks out the qualified portion. Investors enter these figures on Schedule B and Form 1040. Verifying box 1b carefully ensures you claim the correct lower rate rather than accidentally overpaying by reporting all dividends as ordinary income.