Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.

What makes a dividend qualified?

To qualify for the qualified dividend rate, the payee must own the stock for a long enough time, generally 60 days for common stock and 90 days for preferred stock. To qualify for the qualified dividend rate, the dividend must also be paid by a corporation in the U.S. or with certain ties to the U.S.

Are Apple dividends qualified or ordinary?

So if an investor is paid a dividend by Apple ( AAPL ) or Microsoft ( MSFT ) and they meet the holding period criteria then those dividends are qualified. If the holding period is not met then the dividend is unqualified (and thus taxed at the normal income tax rate).

What’s the difference between ordinary income and qualified dividends?

But qualified dividends are taxed at long-term capital gains rates – and those are meaningfully lower than ordinary income tax rates, regardless of your tax bracket. If your ordinary income tax bracket has you paying: 10% to 15%, your tax on qualified dividends is zero.

Do you have to pay taxes on qualified dividends?

Investors at the 15% income-tax rate or below pay no taxes on qualified dividends. Investors at the 25% rate or higher save the most on qualified-dividend taxes. The rate on qualified dividends for investors with ordinary income taxed at 10% or 12% is 0%.

How are dividends taxed in the United States?

Ordinary dividends are that portion of a company’s retained earnings that are distributed to shareholders on a regular basis. These dividends are classified as ordinary income, so ordinary income tax rates apply to them. Most dividends are considered to be ordinary dividends, and so are taxed at the higher ordinary income tax rate.

How are ordinary dividends reported on a tax return?

When you receive the form you want to focus on boxes 1a and 1b. Box 1a reports the total ordinary dividend payments and box 1b reports the amount reported in box 1a that represents qualified dividends. When you prepare your tax return, you will report these two amounts on separate lines.