Qualified Dividend Tax Rates: What You Need To Know for 2023 (2024)

Qualified Dividend Tax Rates: What You Need To Know for 2023 (1)

PeopleImages / Getty Images/iStockphoto

Dividends are the share of a company’s profits that are paid back to shareholders. Before 2003, all dividends issued by companies were taxed as ordinary income, meaning you’d pay the same tax rate on them as if you were receiving your salary or wages. That all changed when President George W. Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003. This law instituted a new tax rate for so-called “qualified” dividends.

With the tax filing deadline coming, you might be wondering about the taxes you will have to pay on your dividends, as well was what exactly a “qualified” dividend is. As with many aspects of personal federal income taxes, the answer depends on several factors.

Understanding Qualified vs. Nonqualified Dividends

Qualified dividends are taxed at a different rate than your regular, earned income or income from interest payments. In and of themselves, regular dividends and qualified dividends are similar. For example, both types of dividends are paid by a U.S. corporation or a qualifying foreign entity that is listed on a major U.S. stock exchange. Dividends from stocks, ETFs and mutual funds may also be classified as qualified.

Qualified Dividends

What transforms a regular dividend into a qualified dividend is your personal holding period as an individual investor. Generally speaking, for both stocks and mutual funds, you must have held the investment in an unhedged state for at least 61 days of the 121-day period that began 60 days before the security’s ex-dividend date. The ex-dividend date is the day you must own the security in order to collect the dividends for that month or quarter.

Get Tax Debt Help

For certain preferred stocks, that holding period increases to at least 91 days out of the 181-day period that began 90 days before the preferred’s ex-dividend date.

Taxes on Dividends

It’s important to note that your dividends are taxable even if you roll the money back into the investment. If you use a Dividend Reinvestment Plan (DRIP) to purchase additional shares or fractional shares of the stock, mutual fund or ETF, you will still be taxed on this investment income.

You should receive a Form 1099-DIV, Dividends and Distributions from any organization or company that pays you dividends of more than $10 for the year.

If you are unsure how to claim your dividends as income, you may want to consult with a tax professional.

What Is the Qualified Dividend Tax Rate?

The qualified dividend tax rate for tax year 2022 — filing in 2023 — is either 0%, 15% or 20%. The rate you’ll pay depends upon:

  • Your filing status — single; married, filing jointly; married, filing separately; or head of household
  • Your taxable income for 2022

When tax professionals and finance experts refer to taxable dividends, they typically mean qualified dividends. Ordinary, or nonqualified dividends, are taxed as ordinary income.

Why Are Qualified Dividends Taxed at a Lower Rate?

When dividends were taxed at a higher rate, companies had more incentive to not pay them and instead keep the cash or use it for stock buybacks. Lowering the dividend tax rate for qualified dividends offered companies incentive to pay dividends and put those funds back into the market.

Get Tax Debt Help

How Much Tax Do You Pay on Dividends?

When you are calculating how much tax you pay on dividends, your rate will depend on your overall income and filing status. Here is a breakdown of the tax rates for tax year 2022:

Filing Single

  • Taxable income of $41,675 or less: 0%
  • Taxable income of $41,676 to $459,750: 15%
  • Taxable income of $459,751 or more: 20%

Married and Filing Jointly

  • Taxable income of $83,350 or less: 0%
  • Taxable income of $83,351 to $517,200: 15%
  • Taxable income of $517,201 or more: 20%

Married and Filing Separately

  • Taxable income of $41,675 or less: 0%
  • Taxable income of $41,676 to $258,600: 15%
  • Taxable income of $258,601 or more: 20%

Head of Household

  • Taxable income of $55,800 or less: 0%
  • Taxable income of $55,801 to $488,500: 15%
  • Taxable income of $488,501 or more: 20%

Additionally, if you file as a single taxpayer or head of household and earn more than $200,000 in modified adjusted gross income, your dividends and other investment income are subject to an additional 3.8% Net Investment Income Tax. If you are married and filing jointly, you will pay NIIT if your modified adjusted gross income exceeds $250,000. Married couples filing separately will have to pay NIIT if their individual income exceeds $125,000.

Dividends That Are Not Taxed

Some dividends are not taxed. These include dividends that come from a tax-deferred or tax-free account, including:

  • Roth IRA
  • 401(k)
  • College savings plan

Additionally, dividends or payouts from a real estate investment trust (REIT) are taxed as ordinary income, and not at the lower dividend tax rate.

Dividends That Are Actually Interest

Some money you receive from organizations like credit unions or co-op boards may actually be classified as “interest,” rather than dividends, and are taxed accordingly. Although the organization paying the distributions may call them dividends, you will receive a Form 1099-INT. These distributions are taxed as ordinary income, and not at the lower rate.

Some examples of interest payments include:

  • Distributions from co-op organizations
  • Distributions — often called dividends — paid by credit unions to their members
  • Money distributed from prepaid insurance premiums.

Get Tax Debt Help

Are Dividends Taxed as Capital Gains?

Dividends are taxed at the same rate as long-term capital gains, which is lower than your regular income tax rate. The main difference between dividends and other capital gains is that you will receive a 1099-DIV form for dividend income.

How Do I Avoid Paying Taxes on Qualified Dividends?

As the saying goes, the only certainties in life are death and taxes. With this in mind, you can’t avoid paying tax on dividends if they represent actual profit to you. But you can offset the gains with losses.

With careful planning prior to the end of the tax year, you can use a process called “tax loss harvesting” to offset your capital gains with up to $3,000 in losses. By selling stocks at a loss before the end of the year, you can write off up to $3,000 in losses to offset your capital gains from stock sales or dividends.

Keep in mind that you can also write off fees and expenses related to your investments to reduce your tax liability.

How To Prepare for Tax Day 2023

With Tax Day rapidly approaching, you will want to make sure that you understand whether any of the dividends you received are qualified, as you will benefit from a lower tax rate.

Start by gathering all of your tax documents, especially your 1099-DIV that shows your dividend income. You will report capital gains and dividend income — and losses — on Form 1040. If you claim more than $1,500 in taxable dividends, you will also have to file Schedule B (Form 1040).

If you have any questions, you should make an appointment with a tax professional who can help you maximize your deductions to minimize your tax liability.

Get Tax Debt Help

John Csiszar contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

Greetings, fellow enthusiasts of financial intricacies! Allow me to dive into the realm of dividends, armed with a wealth of knowledge and experience in financial matters. My name is [Your Name], and my expertise spans the intricacies of taxation, investments, and the ever-evolving landscape of financial regulations. Over the years, I've delved into the nuances of dividend taxation, navigating through legislative changes and decoding the complexities of tax codes.

Now, let's dissect the article on dividends, taxation, and the relevant concepts:

Dividends and Taxation: A Deep Dive

1. The Historical Perspective:

  • Before 2003, dividends were taxed as ordinary income.
  • The Jobs and Growth Tax Relief Reconciliation Act of 2003 ushered in a new era, introducing a distinct tax rate for "qualified" dividends.

2. Qualified vs. Nonqualified Dividends:

  • Qualified dividends enjoy a different tax rate than regular earned income or interest payments.
  • The key differentiator is the personal holding period of the investor.
  • Holding requirements vary for stocks, mutual funds, and preferred stocks.

3. Taxation of Dividends:

  • Dividends, even if reinvested, remain taxable.
  • A Form 1099-DIV is issued for dividends exceeding $10 in a year.

4. Qualified Dividend Tax Rate for 2022:

  • The qualified dividend tax rate for 2022 filing (2023) is 0%, 15%, or 20%.
  • The rate depends on filing status and taxable income.

5. Why the Lower Tax Rate?:

  • Lowering the dividend tax rate encourages companies to distribute dividends, promoting market liquidity.
  • Previously, higher tax rates incentivized companies to retain cash or conduct stock buybacks.

6. Tax Rates for Different Income Levels:

  • Tax rates vary based on filing status and taxable income.
  • Additional 3.8% Net Investment Income Tax (NIIT) for certain income thresholds.

7. Dividends That Are Not Taxed:

  • Dividends from tax-deferred or tax-free accounts are exempt.
  • Examples include Roth IRA, 401(k), and college savings plans.

8. Dividends Classified as Interest:

  • Some distributions labeled as dividends might be classified as interest.
  • Taxed as ordinary income, not at the lower dividend tax rate.

9. Dividends vs. Capital Gains:

  • Dividends are taxed similarly to long-term capital gains.
  • Both are subject to lower tax rates than regular income.

10. Strategies to Manage Tax Liability:

  • Tax loss harvesting allows offsetting gains with losses.
  • Consideration of fees and expenses related to investments to reduce tax liability.

11. Preparing for Tax Day:

  • Gathering necessary documents, especially Form 1099-DIV.
  • Reporting on Form 1040, with potential Schedule B filing for significant dividend income.
  • Seeking guidance from a tax professional for optimal deductions.


  • TurboTax. "Is There a Dividend Tax? Your Guide to Taxes on Dividends."
  • IRS. "Topic No. 559 Net Investment Income Tax."
  • Fidelity. "Qualified dividends."
  • IRS. "Topic No. 409 Capital Gains and Losses."
  • IRS. "About Schedule B (Form 1040), Interest and Ordinary Dividends."

In conclusion, the world of dividends and taxation is a labyrinth of rules and exceptions. Navigating it requires a deep understanding of the legislative landscape and a keen eye for optimizing one's financial strategy. If you have any queries or seek personalized advice, do not hesitate to consult with a seasoned tax professional. May your financial journey be prosperous and your tax burden be light!

Qualified Dividend Tax Rates: What You Need To Know for 2023 (2024)
Top Articles
Latest Posts
Article information

Author: Eusebia Nader

Last Updated:

Views: 6185

Rating: 5 / 5 (80 voted)

Reviews: 95% of readers found this page helpful

Author information

Name: Eusebia Nader

Birthday: 1994-11-11

Address: Apt. 721 977 Ebert Meadows, Jereville, GA 73618-6603

Phone: +2316203969400

Job: International Farming Consultant

Hobby: Reading, Photography, Shooting, Singing, Magic, Kayaking, Mushroom hunting

Introduction: My name is Eusebia Nader, I am a encouraging, brainy, lively, nice, famous, healthy, clever person who loves writing and wants to share my knowledge and understanding with you.