Qualified vs ordinary dividends: 2026 tax rates

Two dividends of the same size can cost you very different amounts in tax. A "qualified" dividend is taxed like a long-term capital gain — at 0%, 15% or 20%. An "ordinary" dividend is taxed like your salary, at up to 37%. Which one you receive depends on what paid it and how long you held the shares, and part of that is under your control.

Here is how the two types work, the 2026 numbers, how to read your Form 1099-DIV, and the mistakes that quietly turn qualified dividends into ordinary ones.

Qualified and ordinary dividends in one table

	Qualified dividends	Ordinary (non-qualified) dividends
Federal rate	0%, 15% or 20%	your ordinary income rate, 10% to 37%
Typical sources	most US companies; many foreign companies	REITs, money market funds, bond fund income, short holdings
Form 1099-DIV	box 1b (also counted in box 1a)	box 1a minus box 1b
Holding period needed	yes (see below)	no

Box 1a on Form 1099-DIV shows your total ordinary dividends — which, confusingly, includes the qualified ones. Box 1b shows the part that is qualified. The difference is taxed at ordinary rates.

2026 tax rates on qualified dividends

Qualified dividends use the long-term capital gains brackets. For 2026 (IRS Revenue Procedure 2025-32) the thresholds, based on taxable income, are:

Filing status	0% up to	15% up to	20% above
Single	$49,450	$545,500	$545,500
Married filing jointly	$98,900	$613,700	$613,700
Head of household	$66,200	$579,600	$579,600

Two details matter. First, the brackets apply to your total taxable income, with qualified dividends and long-term gains "stacked" on top of your other income. So the 0% rate covers only the part of your dividends that fits under the threshold after your salary. Second, high earners also pay the 3.8% net investment income tax (NIIT) on dividends once modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). Those NIIT thresholds are not adjusted for inflation.

Worked example

A single filer has $40,000 of taxable income from wages (after the standard deduction) and receives $15,000 of qualified dividends, for $55,000 of taxable income.

• $9,450 of the dividends fits under the $49,450 threshold and is taxed at 0%.
• The remaining $5,550 is taxed at 15%: $832.50.

If the same $15,000 were ordinary dividends, it would be taxed at 12% up to $50,400 and 22% above it: $10,400 × 12% + $4,600 × 22% = $2,260. Same cash, almost three times the tax.

What makes a dividend "qualified"

A dividend is qualified when two conditions are met.

1. It was paid by a US corporation or a qualified foreign corporation. Foreign companies count if their country has a comprehensive tax treaty with the US, or if their shares (or ADRs) trade on a major US exchange. Most large foreign companies you can buy as ADRs qualify.

2. You held the shares long enough. You must have held them for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. For most preferred stock the requirement is longer (more than 90 days in a 181-day window, for dividends tied to periods over 366 days).

The holding-period rule is where active investors lose the lower rate. Buy a stock a week before the ex-dividend date and sell it a month later, and the dividend is ordinary — even though your 1099-DIV may show it in box 1b, because brokers often can't see your full holding period across accounts.

Dividends that are never qualified

• REIT dividends — mostly ordinary income, because REITs don't pay corporate tax on what they distribute.
• Money market funds and bond funds — their "dividends" are really interest.
• Payments in lieu of dividends — when your broker lends out your shares and you receive a substitute payment.
• Dividends from tax-exempt organizations, and dividends on shares where you held an offsetting (hedged) position.

Fund capital gain distributions (box 2a) are a separate category: they are taxed at long-term capital gains rates no matter how long you held the fund.

Reinvested dividends are still taxed

Dividend reinvestment (DRIP) doesn't defer the tax. A reinvested dividend is taxed in the year it's paid, exactly as if you had received cash. The upside: each reinvestment buys shares at a new cost basis, which lowers your taxable gain when you eventually sell. Make sure those purchases are in your records, or you risk being taxed on the same money twice.

Dividends from foreign stocks: the withholding

Foreign governments often withhold tax on dividends before they reach your account — for example 15% under many tax treaties. You can usually get that money back through the foreign tax credit. If your total creditable foreign taxes are $300 or less ($600 married filing jointly), and all of it comes from passive income reported on 1099s, you can claim the credit directly on Form 1040 without filing Form 1116.

Foreign tax withheld inside an IRA can't be credited, so foreign dividend payers are usually better held in a taxable account.

Where dividends are taxed — and where they aren't

Dividends paid inside a traditional IRA, Roth IRA or 401(k) aren't taxed when they're paid. In a traditional account the money is taxed later as ordinary income on withdrawal; in a Roth, qualified withdrawals are tax-free. That's why high-yield, ordinary-dividend payers such as REITs are often placed in retirement accounts, while broad index funds — mostly qualified dividends — sit well in taxable accounts. See our comparison of a Roth IRA and a taxable brokerage account.

Common mistakes

• Selling too soon around the ex-dividend date, which turns qualified dividends into ordinary ones.
• Assuming box 1b is final. The holding-period test is yours to meet; the 1099 is the broker's best estimate.
• Forgetting state tax. Most states tax dividends as ordinary income, whatever the federal treatment.
• Ignoring reinvested dividends in your cost basis, then paying tax on them again when you sell.
• Chasing yield in a taxable account with REITs or covered-call funds whose payouts are mostly ordinary income.

Track what you actually receive

GetHossa's dividend tracker records every dividend you receive as your broker booked it, shows your dividend income month by month and forecasts the next 12 months from your current holdings — gross, before tax, since your rate depends on the factors above. It doesn't prepare tax forms — your 1099-DIV remains the source for your return. To estimate what a position pays after tax at your own rate, and its yield on cost, use our dividend income and yield on cost calculator.

This article is for educational purposes only and is not tax advice. Tax rules change and individual situations differ; for decisions about your return, consult a tax professional.