What Are the Current Dividend Tax Rates?

A dividend is a payment of a company’s earnings to its shareholders. The U.S. tax system has specific rules for how this income is taxed, and the rate applied can vary based on several factors. The tax treatment depends on the type of dividend and the investor’s overall financial picture.

Qualified Versus Ordinary Dividends

For tax purposes, dividends fall into two main categories: qualified and ordinary. Qualified dividends are eligible for lower tax rates, similar to long-term capital gains, while ordinary dividends are taxed at an individual’s regular income tax rates. This preferential treatment is designed to encourage long-term investment.

A dividend must meet two primary tests from the Internal Revenue Service to be considered qualified. First, the dividend must be paid by a U.S. corporation or a qualified foreign corporation. A foreign corporation generally qualifies if it is incorporated in a U.S. possession, is eligible for benefits of a comprehensive income tax treaty with the U.S., or its stock is readily tradable on an established U.S. securities market.

The second requirement is the holding period. An investor must have held the stock 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 day on which the stock begins trading without the value of its next dividend payment. To receive qualified treatment, the shareholder must have owned that stock for at least 61 days within that specific timeframe.

Certain payments, even if called dividends, do not meet the criteria for qualified dividends. These include capital gain distributions, dividends from tax-exempt organizations, and dividends paid on employee stock options. Any dividend that fails to meet these requirements is categorized as an ordinary dividend and taxed at the rates applicable to a person’s regular income.

Tax Rates for Qualified Dividends

The tax rates for qualified dividends are 0%, 15%, or 20%, and the specific rate an investor pays is determined by their taxable income and filing status. For the 2025 tax year, the 0% rate applies to taxpayers whose income falls below certain thresholds. This means individuals with relatively lower incomes may pay no federal income tax on their qualified dividend income.

For the 2025 tax year, the 0% tax rate on qualified dividends applies to single filers with taxable income up to $48,350 and married couples filing jointly with income up to $96,700. Heads of household can have income up to $64,750, and married individuals filing separately have an income threshold of $48,350.

Most taxpayers fall into the 15% tax bracket for qualified dividends. For 2025, this rate applies to single filers with taxable income between $48,351 and $533,400. For married couples filing jointly, the bracket covers income from $96,701 to $600,050. For heads of household, the range is $64,751 to $566,700, and for married individuals filing separately, it is $48,351 to $300,000.

The highest rate for qualified dividends, 20%, is for taxpayers with substantial income. For the 2025 tax year, this rate applies to taxable income exceeding $533,400 for single filers, $600,050 for married couples filing jointly, $566,700 for heads of household, and $300,000 for those married filing separately. These income thresholds are for total taxable income, not just the dividend income itself.

Tax Rates for Ordinary Dividends

Ordinary dividends do not benefit from the lower tax rates afforded to qualified dividends. This income is taxed at the same marginal rates that apply to a taxpayer’s other ordinary income, such as wages and interest. These rates range from 10% to 37%, depending on total taxable income and filing status.

The income from ordinary dividends is added to a taxpayer’s other income to determine their applicable tax bracket. For example, a single filer for the 2025 tax year with $80,000 in salary and $5,000 in ordinary dividends would have a total ordinary income of $85,000. This places them in the 22% marginal tax bracket for a portion of that income.

An investor in a high-income bracket could pay as much as 37% on an ordinary dividend, compared to the 20% maximum for a qualified dividend. This difference underscores the value of meeting the requirements for qualified dividend treatment.

The Net Investment Income Tax

Some higher-income taxpayers may be subject to an additional tax known as the Net Investment Income Tax (NIIT). This is a 3.8% tax that applies to certain investment income, including both qualified and ordinary dividends. The tax is levied on top of the regular income tax or the preferential qualified dividend tax rates.

The NIIT applies if a taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds specific thresholds. These are $200,000 for single filers and heads of household, $250,000 for married couples filing jointly, and $125,000 for those married filing separately.

The tax is calculated on the lesser of two amounts: the taxpayer’s total net investment income or the amount by which their MAGI surpasses the applicable threshold. For instance, if a single filer has a MAGI of $220,000 and $30,000 in net investment income, the NIIT would apply to the $20,000 of income that exceeds the $200,000 threshold. This results in an additional tax of $760 (3.8% of $20,000).

Reporting Dividend Income on Your Tax Return

Taxpayers report dividend income to the IRS using information provided on Form 1099-DIV. This form is sent by brokerages or other financial institutions that paid out dividends and details the total amount and type of dividends received during the tax year.

Form 1099-DIV has several boxes that separate the different types of dividend income. Box 1a shows the total amount of ordinary dividends received. Box 1b, a subset of Box 1a, reports the portion of the total that is considered qualified dividends.

The information from Form 1099-DIV is reported on Form 1040, the U.S. Individual Income Tax Return. The total ordinary dividends from Box 1a are entered on line 3b of Form 1040, while the qualified dividends from Box 1b are entered on line 3a. This allows the IRS to apply the correct tax rates to each portion.