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For U.S. individual investors, most stock and fund dividends are generally ordinary income—not capital gains. A portion may qualify for lower federal rates of 0%, 15%, or 20%, depending on the dividend, how long you held the shares, and your taxable income. Your Form 1099-DIV is the starting point, but its boxes do not by themselves determine your final tax.
How ordinary and qualified dividends are taxed
Ordinary dividends generally come from a corporation’s or mutual fund’s earnings and profits and are taxed as ordinary income. A payment does not become a capital gain simply because it came from stock. Unless the payer identifies a distribution differently, the IRS generally treats distributions on common or preferred shares as ordinary dividends.
Qualified dividends are a subset of ordinary dividends. The IRS defines them as “the ordinary dividends that are subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain.” The preferential rate is a maximum rate, not a promise that every qualified dividend is taxed at 15% or at the same rate: the applicable tax worksheet uses your taxable income and filing status.
What makes a dividend qualified
Generally, the dividend must be paid by a U.S. corporation or a qualified foreign corporation, must not fall within an excluded category, and must meet the holding-period rule. For common stock, you generally must hold the shares for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. For certain preferred stock with dividends covering periods totaling more than 366 days, the rule is more than 90 days during the 181-day period beginning 90 days before the ex-dividend date. These are specific tests—not a blanket rule that a dividend qualifies after a calendar quarter. See the [IRS Publication 550 (2025)](https://www.irs.gov/pub/irs-pdf/p550.pdf) for details and exceptions.
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2025 federal preferential-rate thresholds
For tax year 2025, the following taxable-income amounts define the maximum 0% and 15% capital-gain rate bands used in the qualified-dividend worksheet. The amounts are for all taxable income, not just dividend income; qualified dividends may fall across more than one band. Income above the listed 15% ceiling may put the remaining qualified dividends in the 20% band.
| Filing status | Maximum 0% rate amount | Maximum 15% rate amount |
|---|---|---|
| Single | $48,350 | $533,400 |
| Married filing jointly or qualifying surviving spouse | $96,700 | $600,050 |
| Head of household | $64,750 | $566,700 |
| Married filing separately | $48,350 | $300,000 |
These are 2025 thresholds published by the IRS for the preferential-rate worksheet; later tax years can have different amounts. Use the [2025 Schedule D instructions](https://www.irs.gov/pub/irs-pdf/i1040sd.pdf) and the worksheet applicable to your return rather than applying a single rate to all dividends.
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How to read Form 1099-DIV and report dividends
A payer generally must send Form 1099-DIV when it pays at least $10 in reportable distributions. The form separates dividend types, but some investors instead receive relevant income through a Schedule K-1 or another information return. If a dividend breakdown is missing, contact the payer. The IRS explains the reporting rules in [Topic No. 404, Dividends](https://www.irs.gov/taxtopics/tc404) and its [Form 1099-DIV frequently asked questions](https://www.irs.gov/newsroom/form-1099-div-frequently-asked-questions).
Form 1099-DIV boxes and Form 1040 lines
| Form 1099-DIV item | Typical federal treatment |
|---|---|
| Box 1a, ordinary dividends | Generally reported on Form 1040 line 3b. |
| Box 1b, qualified dividends | Generally reported on Form 1040 line 3a. This amount is included in box 1a; do not add it again as separate income. |
| Other populated boxes | May represent capital-gain distributions, nondividend distributions, tax-exempt interest dividends, or other categories with separate instructions. |
For tax year 2025, check the current [Form 1040 instructions](https://www.irs.gov/instructions/i1040gi), especially if other boxes are populated. If your taxable ordinary dividends exceed $1,500, you generally must file Schedule B. Form 1040-NR filers follow different reporting rules.
Reinvested dividends are still distributions
Automatically using a dividend to buy additional shares does not by itself make the distribution tax-free. Reinvestment changes what you do with the money; it does not generally change whether you received taxable dividend income. Keep the records needed to track the cost basis of shares purchased with reinvested amounts.
When a payment called a dividend has different treatment
Check the form box and the payer’s tax statement rather than assuming every payment described as a dividend follows the ordinary-versus-qualified rules.
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- Capital-gain distributions: Distributions from regulated investment companies and REITs are generally treated as long-term capital gains and reported under the applicable instructions.
- Nondividend distributions: These generally reduce your investment’s basis until it is exhausted; amounts beyond basis can have different consequences.
- Tax-exempt interest dividends: These have separate reporting and tax treatment.
- Other payments: Credit-union payments, substitute payments, and certain foreign distributions may not qualify as ordinary or qualified dividends under the usual rules.
The [IRS Publication 550 (2025)](https://www.irs.gov/pub/irs-pdf/p550.pdf) discusses these categories. The correct treatment depends on the payment type and the instructions for the relevant form.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.When the 3.8% Net Investment Income Tax may apply
The Net Investment Income Tax (NIIT) is a separate 3.8% tax. It generally applies to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds the applicable threshold. Dividends can be part of net investment income, but crossing a threshold does not mean all your dividends automatically incur the tax.
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| Filing status | MAGI threshold |
|---|---|
| Single or head of household | $200,000 |
| Married filing jointly or qualifying surviving spouse | $250,000 |
| Married filing separately | $125,000 |
These thresholds and the 3.8% rate are described in [IRS Publication 550 (2025)](https://www.irs.gov/pub/irs-pdf/p550.pdf). The tax calculation depends on both MAGI and the definition and amount of net investment income.
Foreign dividends and the limits of this federal overview
U.S. citizens generally must report foreign-source investment income unless U.S. law provides an exemption. A dividend from a foreign company may qualify for preferential rates if the company is a qualified foreign corporation and the other requirements are met. Foreign tax withheld or paid can raise a separate foreign tax credit question; consult [Publication 550](https://www.irs.gov/pub/irs-pdf/p550.pdf) and the [Form 1116 instructions](https://www.irs.gov/instructions/i1116).
Nonresident aliens are subject to different withholding rules, which may be reduced by treaty in applicable cases; do not use the resident individual reporting summary above for a nonresident return. See the IRS guidance on [nonresident alien taxation](https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens).
This article addresses federal tax treatment for U.S. individual investors using 2025 tax-year guidance. State tax rules can differ, and the overview does not cover every trust, estate, retirement-account, kiddie-tax, or foreign-tax-credit situation. Your filing status, taxable income, holding period, issuer, account type, and distribution details can all affect the result.
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