How Are Dividends Taxed?

Dividends are investment income, and like most income, the IRS wants a piece. The good news: many dividends get a much lower tax rate than your paycheck, and some people pay nothing at all.

Two kinds of dividends

Qualified dividends are taxed at the same low rates as long-term capital gains: 0%, 15% or 20%, depending on your taxable income. Most dividends from U.S. companies and many foreign ones qualify, as long as you have held the shares for more than 60 days around the payout date.

Ordinary dividends (sometimes called nonqualified) are taxed at your regular income tax rate, from 10% to 37%. This group includes most REIT dividends, payouts from money market and bond funds, and dividends on shares you did not hold long enough.

See them side by side in qualified vs ordinary dividends.

The 2026 brackets

For tax year 2026 (the return you file in early 2027), qualified dividends are taxed at:

• 0% if your taxable income is up to $49,450 single, $98,900 married filing jointly or $66,200 head of household
• 15% up to $545,500 single, $613,700 married filing jointly or $579,600 head of household
• 20% above those amounts

Higher earners may also owe the 3.8% net investment income tax once modified adjusted gross income passes $200,000 single or $250,000 married filing jointly. Most states tax dividends as regular income too.

A quick example

Say you are single with $45,000 of taxable income, including $1,200 of qualified dividends. You are under $49,450, so your federal tax on those dividends is $0. If the same $1,200 were ordinary dividends, it would be taxed at your 12% bracket, about $144.

Easy ways to keep more

• Use a Roth IRA. Dividends inside a Roth are not taxed when they are paid, and qualified withdrawals in retirement are tax-free. It is the best home for investments that pay ordinary dividends, like REITs.
• Hold for the long run. Buying and holding easily meets the 60-day rule, so your dividends stay qualified.
• Mind where each fund lives. Many people keep higher-paying funds taxed as ordinary income in retirement accounts and broad stock funds in a regular brokerage account.

Where you will see it

Your brokerage sends a Form 1099-DIV early each year with your totals. More in What Is a 1099-DIV?

Tax rules change every year. This guide is general education, not tax advice. Check current IRS figures or a tax professional for your situation.