Federal Dividend Tax Rates According to the IRS

When a company earns a profit, it can distribute a portion of those earnings to its shareholders, which is known as a dividend. The Internal Revenue Service (IRS) views these distributions as income to the investor, and they are subject to federal taxation. Receiving dividends is a benefit of stock ownership, but it comes with tax obligations that affect an investor’s overall return. The amount of tax owed depends on the investor’s total taxable income and the specific nature of the dividend itself, so it is important to understand the rules that determine how dividends are classified and taxed.

Qualified vs Ordinary Dividends

The IRS distinguishes between two primary categories of dividends for tax purposes: ordinary and qualified. An ordinary dividend, sometimes referred to as a nonqualified dividend, is taxed at an individual’s standard income tax rates, the same as wages or interest income. This means the tax rate can be significantly higher for investors in higher income brackets.

For a dividend to receive more favorable tax treatment, it must meet the two main requirements for a “qualified” dividend. First, the dividend must have been paid by a U.S. corporation or a qualified foreign corporation. A foreign corporation qualifies if it is incorporated in a U.S. possession, is eligible for benefits of a comprehensive income tax treaty with the United States, or its stock is readily tradable on an established U.S. securities market.

The second requirement is the holding period, where an investor must own the stock for a specific length of time to benefit from lower tax rates. The stock must be held for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the cutoff day that determines who is entitled to receive the upcoming dividend payment.

To illustrate the holding period, consider a stock with an ex-dividend date of October 15. The 121-day window begins 60 days prior, on August 16, and ends 60 days after. To meet the requirement, an investor would need to own that stock for at least 61 of those 121 days. This rule reserves the favorable tax treatment for longer-term investors, not those who trade shares just to capture a dividend.

Federal Tax Rates on Dividends

Qualified dividends are taxed at the long-term capital gains rates of 0%, 15%, or 20%, depending on an individual’s taxable income and filing status. For the 2025 tax year, the 0% rate applies to single filers with taxable income up to $48,350 and married couples filing jointly with income up to $96,700.

The 15% rate for qualified dividends in 2025 covers single filers with taxable income between $48,351 and $533,400, and married couples filing jointly with income between $96,701 and $600,050. The 20% rate applies to single filers with taxable income over $533,400 and married couples filing jointly with income over $600,050.

| 2025 Qualified Dividend Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
| :— | :— | :— | :— |
| 0% | Up to $48,350 | Up to $96,700 | Up to $64,750 |
| 15% | $48,351 – $533,400 | $96,701 – $600,050 | $64,751 – $566,700 |
| 20% | Over $533,400 | Over $600,050 | Over $566,700 |

Ordinary dividends are taxed at the same marginal rates as an individual’s other ordinary income, such as salary, wages, or business profits. For 2025, these rates range from 10% to as high as 37%, depending on total taxable income.

The Net Investment Income Tax

Some higher-income taxpayers may be subject to an additional tax known as the Net Investment Income Tax (NIIT). The NIIT is a 3.8% tax levied on certain investment income, including dividends. It applies to individuals, estates, and trusts that have net investment income and a Modified Adjusted Gross Income (MAGI) exceeding specific thresholds.

The MAGI thresholds for the NIIT are based on filing status. For single filers and heads of household, the threshold is $200,000. For married couples filing jointly and qualifying surviving spouses, the threshold is $250,000, while for married couples filing separately, it is $125,000. If an individual’s MAGI is below their respective threshold, they are not subject to the NIIT, regardless of how much investment income they have.

When the NIIT applies, the 3.8% tax is calculated on the lesser of two amounts: the taxpayer’s total net investment income or the amount by which their MAGI exceeds the applicable threshold. For example, if a single filer has a MAGI of $270,000 and $90,000 in net investment income, their MAGI exceeds the $200,000 threshold by $70,000. Since $70,000 is less than their total net investment income of $90,000, the 3.8% tax is applied to the $70,000, resulting in an NIIT liability of $2,660.

Reporting Dividend Income on Your Tax Return

After the close of the tax year, investors who have received dividends will get a Form 1099-DIV, Dividends and Distributions, from their brokerage firm or the paying entity. This form is typically sent by January 31. It details the total amounts paid and breaks them down into different categories for tax purposes.

The most important boxes on Form 1099-DIV are Box 1a and Box 1b. Box 1a shows the total amount of ordinary dividends received, which is the sum of all dividend payments. Box 1b, which is a subset of the amount in Box 1a, shows the portion of those dividends that are considered qualified.

The information from Form 1099-DIV is transferred directly to the main federal income tax return, Form 1040. The amount of qualified dividends from Box 1b is entered on Line 3a of Form 1040. The total ordinary dividends from Box 1a are reported on Line 3b.

If a taxpayer’s total ordinary dividend income exceeds $1,500 for the year, they are required to file an additional form, Schedule B (Form 1040), Interest and Ordinary Dividends. This schedule provides a more detailed breakdown of the sources of the dividend income. The totals from Schedule B are then carried over to the appropriate lines on Form 1040.