Is Dividend Income Taxable?

In most cases, dividend income is taxable. Taxpayers will often receive a Form 1099-DIV for all dividends in excess of $10 or more earned from any single entity. In addition, taxpayers must report this income on Schedule B of their Federal tax return if they've received over $1,500. Qualified dividends are also subject to their own tax table which topped out at 20% for 2021.

Some investment vehicles that issue dividends are exempt from taxes, as some mutual funds or other regulated investments may hold municipal or tax-exempt securities that yield nontaxable dividends. In addition, the lowest tier for the qualified dividend tax table assesses a 0% tax on individuals with lower income.

Key Takeaways

  • The tax rate for dividends depends on whether they are qualified or nonqualified.
  • Qualified dividends, which include those paid by U.S. companies, are taxed the long-term capital gains rate.
  • Nonqualified, or ordinary, dividends, such as those paid by real estate investment trusts (REITs), are taxed at the regular income rate.

A qualified dividend is taxed at the lower long-term capital gains tax rate instead of at the higher tax rate used on an individual’s regular income. To be eligible for this special tax rate, a dividend must be paid by one of the following:

  • A U.S. company
  • A company in U.S. possession
  • A foreign company residing in a country that is eligible for benefits under a U.S. tax treaty
  • A foreign company’s stock that can be easily traded on a major U.S. stock market

These dividends must also meet holding period requirements. The stock must have been held in excess of 60 days during the 121-day period beginning 60 days before the ex-dividend date. In the case of preferred stock, the stock must have been held in excess of 90 days during the 181-day period beginning 90 days before the ex-dividend date if the dividends are due in a period of time longer than 366 days.

Qualified Dividend Taxes

Qualified dividends are tax-free for individuals in the 10%, 12%, and 22% tax brackets (or those earning less than $80,000 per year). For individuals in the 22%, 24%, 32%, and 35% tax brackets, dividends receive a 15% tax rate. Dividends are taxed at a 20% rate for individuals whose income exceeds $209,425 (those who fall in either the 35% or 37% tax bracket). The breakdown of taxes on qualified dividends is as follows:

Dividend Tax Rate
Tax Bracket  Tax Rate on Regular Income Tax Rate for Qualified Dividends / Capital Gains
< $9,950 10% 0%
$9,951 to $40,525 12% 0%
$40,526 to $79,999 22% 0%
$80,000 to $86,375 22% 15%
$86,376 to $164,925 24% 15%
$164,926 to $209,425 32% 15%
$209,426 to $441,449 35% 15%
$441,450 to $523,600 35% 20%
> $523,601 37% 20%

Meanwhile, there are nonqualified, or ordinary, dividends. These dividends do not meet the qualified dividend requirements and are treated as short-term capital gains. These nonqualified dividends are taxed at the same rates as an individual's regular income. Thus, in the chart above, nonqualified dividends are taxed at the "Tax Rate on Regular Income."

Advisor Insight

Gregory Hart, CFP
Haddon Wealth Management, LLC, Haddonfield, N.J.

Generally speaking, dividend income is taxable. This is assuming that it is not distributed in a retirement account, such as an IRA, 401(k) plan, etc., in which case it would not be taxable. Here are two common examples of dividend income subject to taxes:

If you own a stock, such as ExxonMobil for example, and receive a quarterly dividend (in cash or even if it is reinvested), it would be taxable dividend income.

Or, for example, let’s say that you own shares in a mutual fund and it distributes dividend income every month. These dividends would also be considered taxable dividend income.

Again, both of these examples apply to dividends received in non-retirement accounts.

Article Sources
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  1. Internal Revenue Service. "1040 (2020), Qualified Dividends."

  2. Internal Revenue Service. "1040 (2020), Ordinary Dividends."

  3. Internal Revenue Service. "Topic No. 409 Capital Gains and Losses."

  4. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2021."

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