How are dividends taxed?

If you receive dividends through stocks, exchange-traded funds, or mutual funds, you’ll likely owe taxes on the income. Here’s what you need to know.

Dividends are shares of profit a company gives its shareholders. Most distributions are paid out in cash, but a company may also give additional stock, property, or other assets. Dividend income is taxable.

The type of dividend you receive, qualified or nonqualified, determines its tax implications.

Nonqualified dividends are the most common payout from a company or mutual fund. They’re generally taxed as ordinary income, subject to federal income tax.

Qualified dividends are typically eligible for the long-term capital gains tax rate, which is 0%, 15% or 20%, depending on your income and tax filing status.

A qualified dividend has to meet a few requirements to be considered a long-term capital gains distribution. A dividend is generally qualified if:

A U.S. corporation or eligible foreign company pays the dividend.
The dividend is not interest income, a capital gain, or other payment that doesn’t qualify according to the IRS definition listed in Publication 550.
You held the asset long enough, generally 61 days within a 121-day period. The holding period starts 60 days before the ex-dividend date, when a company declares which shareholders are eligible to receive a dividend payout.

Here are tax rates for qualified and nonqualified dividends for the 2024 tax year.

Qualified dividends may be eligible for the long-term capital gains tax, which is based on your income and tax filing status.

Tax rate	Single	Married filing jointly	Married filing separately	Head of household
0%	$0 to $48,350	0$ to $96,700	$0 to $48,350	$0 to $64,750
15%	$48,351 to $533,400	$96,701 to $600,050	$48,351 to $300,000	$64,751 to $566,700
20%	$533,401 or more	$600,051 or more	$300,001 or more	$566,701 or more

Sources: The Internal Revenue Service, Topic no. 409, Capital gains and losses 2025

Nonqualified dividends are taxed as ordinary income. The amount you pay is based on your income and tax filing status.

Tax rate	Single	Married filing jointly	Married filing separately	Head of household
10%	$0 to $11,925	$0 to $23,850	$0 to $11,925	$0 to $17,000
12%	$11,926 to $48,475	$23,851 to $96,950	$11,926 to $48,475	$17,001 to $64,850
22%	$48,476 to $103,350	$96,951 to $206,700	$48,476 to $103,350	$64,851 to $103,350
24%	$103,351 to $197,300	$206,701 to $394,600	$103,351 to $197,300	$103,351 to $197,300
32%	$197,301 to $250,525	$394,601 to $501,050	$197,301 to $250,525	$197,301 to $250,500
35%	$250,526 to $626,350	$501,051 to $751,600	$250,526 to $375,800	$250,501 to $626,350
37%	$626,351 or more	$751,601 or more	$375,801 or more	$626,351 or more

Sources: The Internal Revenue Service, Federal Income Tax Rates and Brackets, 2025.

If you received $10 or more in dividends, you should get Form 1099-DIV, which shows how much you received in dividends and whether the dividends are ordinary or qualified. Use this form to complete your income tax return, Form 1040. Even if you don’t receive Form 1099-DIV, you’re still expected to report all dividend income on your tax return.

Taxpayers who receive more than $1,500 in dividends will need to complete Schedule B, which is also part of the income tax return.

Dividend income is taxable in the year you receive it, so it’s difficult to avoid the dividend tax completely. However, you can lower or manage your tax liability in a few ways.

Hold the asset longer: If you keep it beyond the 60-day holding period, it may be eligible for the long-term capital gains tax instead of the ordinary income tax — as long as it meets the other qualified dividend requirements.
Set money aside: You could avoid a surprising tax bill if you ask your employer to withhold more taxes throughout the year or make estimated tax payments. The IRS recommends making estimated payments if you expect to owe $1,000 or more in taxes.
Consider retirement accounts: Money in tax-advantaged accounts, like a 401(k) or IRA, grows tax-free, including dividend-paying investments. With Roth accounts, in particular, you invest with after-tax money. Withdrawals are generally tax-free as long as they’re after you turn 59 ½.

The tax treatment of dividend income depends on whether it’s qualified or ordinary. Ordinary, also called nonqualified dividends, are subject to the federal income tax rate. Qualified dividends, which must meet certain IRS requirements, are eligible for the long-term capital gains tax of 0%, 15%, or 20% based on your income or tax filing status.

Yes, you pay taxes on nonqualified dividends, also known as ordinary dividends. The IRS treats nonqualified dividends as ordinary income, so you’ll pay the tax based on your 2025 federal income tax bracket.

Dividends are not taxed in retirement accounts as long as they remain in the account. Money in retirement accounts typically grows tax-free until you make withdrawals. Withdrawals are taxed differently depending on the type of account. Eligible withdrawals from Roth accounts are generally tax-free. You’ll pay income taxes on withdrawals from traditional retirement accounts.