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Qualified Dividend


A qualified dividend is a type of dividend payment that has been subjected to the lower capital gains tax rate, which is typically 0%, 15%, or 20% depending on an individual’s income level. These dividends are paid by U.S. corporations or qualifying foreign corporations to their shareholders who hold the shares for a specific holding period, as defined by the IRS. The purpose of qualified dividends is to encourage long-term investment and offer favorable tax treatment for investors receiving dividend income.


The phonetic pronunciation of “Qualified Dividend” is: k-w-ɒ-l-ɪ-f-aɪ-d d-ɪ-v-ɪ-d-ɛ-n-d

Key Takeaways

  1. Lower tax rates: Qualified dividends are taxed at a lower rate compared to ordinary dividends. They benefit from long-term capital gains tax rates, which are usually lower than the tax rates applied to regular income and non-qualified dividends.
  2. Eligibility requirements: To be classified as a qualified dividend, certain criteria must be met. The dividends must be paid by a U.S. corporation or a qualified foreign corporation, and the investor must hold the underlying shares for a specific holding period – typically more than 60 days during the 121-day period that begins 60 days prior to the ex-dividend date.
  3. Impact on investors: Qualified dividends have a positive impact on investors, particularly those in higher tax brackets, due to their favorable tax treatment. By focusing on investments that generate qualified dividends, investors can potentially enhance their after-tax returns and grow their investment portfolios more efficiently.


The term “Qualified Dividend” is important in the context of business and finance because it refers to dividends that are eligible for a lower capital gains tax rate, thus providing investors with a favorable tax treatment. This can incentivize investments in dividend-paying stocks and promote long-term investing strategies. These dividends typically arise from shares of domestic corporations or certain qualified foreign corporations, held for a specified time period. A better tax rate on qualified dividends not only benefits investors by increasing their after-tax income but also can make a company’s shares more appealing, thereby positively impacting its stock price and shareholder value.


Qualified dividends represent a significant aspect of investing, as they serve the purpose of encouraging long-term investment in stable, dividend-paying companies. When an investor is holding a financial stake in a company, qualified dividends are an efficient way to gain periodic income with reduced tax liability. These types of dividends highlight the importance of fostering a sustainable investment environment, wherein shareholders can not only benefit from potential capital appreciation but also from consistent and reliable revenue streams. Qualified dividends thus play a crucial role in incentivizing investors to support the growth of corporations and the overall economy. In the context of usage, qualified dividends are employed to distribute earnings to shareholders in a tax-efficient manner. Distributions classified as qualified dividends are taxed at rates that are more favorable compared to the common dividend, which is taxed as ordinary income. For investors, this distinction between a qualified dividend and a non-qualified dividend has significant implications for their after-tax returns. Consequently, understanding the eligibility criteria for qualified dividends, such as the holding period and the type of issuing corporation, becomes essential for smart investment planning. The advantage of qualified dividends serves as a strategic tool for businesses to attract long-term, patient capital support and for investors to maximize the benefits of their chosen investments.


Qualified dividends are dividend payments received from stocks held for a certain period and taxed at a lower long-term capital gains rate rather than ordinary income tax rates. Here are three real-world examples related to qualified dividends: 1. ABC Corporation: Suppose ABC Corporation, a publicly-traded company, declares and pays a dividend to its shareholders. Jane, an investor, owns shares in ABC Corporation and has held them for more than 60 days before the ex-dividend date. As a result, when Jane receives her dividend payment, it will be considered a qualified dividend, and she will be subject to the lower long-term capital gains tax rate when she files her tax return. 2. John’s Mutual Fund Investments: John invests in a mutual fund that focuses on dividend-paying stocks. The mutual fund company distributes qualified dividends generated by the stocks held within the fund to its investors, including John. Assuming John meets the holding period requirements, these dividend payments would be considered qualified dividends, and he would benefit from the lower tax rate on his annual tax return. 3. Susan’s Foreign Dividends: Susan is a U.S. taxpayer who invests in foreign stocks that pay dividends. The foreign company is located in a country with a tax treaty with the United States that meets the IRS guidelines for qualified dividends. Provided Susan meets the holding period requirements, she can treat the dividends received from the foreign company as qualified dividends, thus enjoying lower tax rates on those payments when she files her taxes.

Frequently Asked Questions(FAQ)

What is a Qualified Dividend?
A qualified dividend is a type of dividend payment that is taxed at a lower tax rate than regular dividends. It is paid by U.S. companies to shareholders on stocks held for a specified period and meets the requirements set by the Internal Revenue Service (IRS).
What are the requirements for a dividend to be considered qualified?
To be considered qualified, a dividend must meet the following criteria:1. It must be paid by a U.S. corporation or a qualified foreign corporation.2. The dividends must not be listed as non-qualified by the IRS.3. The shareholder must hold the stocks for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.
What is the main difference between qualified and non-qualified dividends?
The primary difference between qualified and non-qualified dividends is the tax rate at which they are both taxed. Qualified dividends benefit from a lower tax rate, while non-qualified dividends are taxed at the shareholder’s regular income tax rate.
Why are qualified dividends taxed at a lower rate?
Qualified dividends are taxed at a lower rate to incentivize long-term investment and stability in the stock market. This reduced tax rate encourages investors to hold onto their stocks for a more extended period, promoting companies’ growth and market stability.
What are the tax rates for qualified dividends?
As of 2020, the tax rates for qualified dividend are as follows:1. 0% for taxpayers with income up to $40,000 (single) or $80,000 (married filing jointly)2. 15% for taxpayers with income between $40,001 – $441,450 (single) or $80,001 – $496,600 (married filing jointly)3. 20% for taxpayers with income above $441,450 (single) or $496,600 (married filing jointly)
How can I determine if I received qualified dividends during a tax year?
Companies that pay dividends will provide a Form 1099-DIV to shareholders at the end of each tax year, which shows the amount of qualified dividends paid. These amounts are listed in Box 1b of the form. If you’re uncertain whether a dividend is qualified, you should consult with a tax professional or the company that paid the dividend.
Can REIT and MLP dividends be considered as qualified dividends?
Real Estate Investment Trusts (REITs) and Master Limited Partnerships (MLPs) dividends generally do not qualify for the lower tax rate since they don’t meet the holding period requirement. These dividends are mostly classified as ordinary income and are taxed at the investor’s regular income tax rate.

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