| Understanding Qualified Dividends and Their Tax Benefits What Are Qualified Dividends? Qualified dividends are a subset of ordinary dividends reported on Form 1099‑DIV that meet IRS criteria and are taxed at the lower long-term capital gains rates (0%, 15%, or 20%) instead of ordinary income tax rates. If you earn dividend income, take a close look at your year-end Form 1099-DIV to see whether any of your dividends are reported as “qualified dividends.” Qualified dividends meet certain IRS criteria, such as being paid by a U.S. corporation or qualifying foreign company and meeting specific holding-period requirements. These dividends are taxed at the lower long-term capital gains rates instead of ordinary income rates, which can reduce your overall tax bill. Qualified dividends provide meaningful tax advantages—lower rates, lower than the highest brackets. To benefit: Confirm dividends are from eligible issuers. Confirm holding periods — 60 days for common, 90 days for preferred. Report Box 1b on the 1099‑DIV correctly. Be mindful of NIIT exposure. Strategically managing dividend income and timing of purchases can significantly boost after-tax returns. |
