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For U.S. federal income tax, ordinary dividends generally are taxed as ordinary income. Qualified dividends are included in that ordinary-dividend total, but may qualify for the 0%, 15%, or 20% maximum rates used for net capital gain. Your rate depends on your taxable income and filing status, and eligibility depends on the dividend and how long you held the shares.
Qualified and ordinary dividends are not separate buckets
Ordinary dividends are the usual kind of corporate or mutual-fund distribution paid from earnings and profits. They generally receive ordinary-income treatment. Form 1099-DIV reports total ordinary dividends in box 1a.
Qualified dividends are a subset of ordinary dividends—not an additional amount. If eligible, they may receive the preferential 0%, 15%, or 20% maximum rates that apply to net capital gain. The Internal Revenue Service explains the categories in Publication 550 (2025), Investment Income and Expenses.
2025 federal tax rates for qualified dividends
The 2025 Form 1040 Qualified Dividends and Capital Gain Tax Worksheet applies the preferential rates based on taxable income and filing status. The 0% rate applies to the portion that fits below the relevant taxable-income ceiling; the 15% rate applies above that ceiling, and the 20% rate applies above the upper threshold. These are tax-year 2025 thresholds, not 2026 thresholds.
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| Filing status | 0% rate ceiling for 2025 taxable income | 20% rate begins above this taxable income |
|---|---|---|
| Single | $48,350 | $533,400 |
| Married filing separately | $48,350 | $300,000 |
| Head of household | $64,750 | not stated in the 2025 Form 1040 instructions |
| Married filing jointly | $96,700 | $600,050 |
| Qualifying surviving spouse | $96,700 | $600,050 |
The figures are taxable-income thresholds published by the IRS in its 2026 instructions for the 2025 Form 1040. Between the 0% ceiling and the applicable 20% threshold, qualified dividends may fall in the 15% band. The worksheet determines how much of a taxpayer’s income is taxed at each rate; the thresholds do not mean all qualified dividends receive one flat rate. Use the applicable worksheet in the 2025 Form 1040 instructions.
What makes a dividend qualified?
Eligibility depends on the payer, the type of distribution, and the shareholder’s holding period. Generally, the dividend must come from a U.S. corporation or a qualified foreign corporation, must not be in an excluded category, and must satisfy the holding-period rule. Do not assume a dividend is qualified simply because it came from a stock or fund.
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Holding period for common shares
For common shares, the general rule is that you must hold the shares for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The day you acquire the shares does not count. Days during which your risk of loss is diminished may also be excluded.
Holding period for certain preferred shares
For certain preferred stock dividends attributable to periods totaling more than 366 days, the requirement is more than 90 days during a 181-day period beginning 90 days before the ex-dividend date. The detailed eligibility and counting rules are in IRS Publication 550.
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Some distributions are excluded
Certain capital-gain distributions, deposit distributions treated as interest, specified dividends from tax-exempt organizations or cooperatives and employee stock ownership plans, some payments connected with related positions, and payments in lieu of dividends do not qualify for the preferential dividend rates. A taxpayer can also fail the holding-period test even if the payer reports an amount as qualified.
How to report dividends on the 2025 Form 1040
- Read Form 1099-DIV. Box 1a reports ordinary dividends; box 1b reports the portion identified as qualified. Box 1b is already included in box 1a, so do not add it to box 1a a second time.
- Check eligibility. Confirm the dividend category and payer meet the requirements, and apply the holding-period rules. The payer’s box 1b reporting does not remove your responsibility to meet the rules.
- Enter the amounts. On the 2025 Form 1040, report qualified dividends on line 3a and total ordinary dividends on line 3b.
- Calculate the tax using the right worksheet. Use the Qualified Dividends and Capital Gain Tax Worksheet in the 2025 Form 1040 instructions, or the Schedule D Tax Worksheet when required.
The IRS sets out the reporting lines and calculation routes in the 2025 Form 1040 instructions.
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Could the 3.8% Net Investment Income Tax also apply?
The Net Investment Income Tax (NIIT) is a separate possible 3.8% tax; it is not one of the qualified-dividend rate bands. For individuals, it may apply to the lesser of net investment income or the amount by which modified adjusted gross income (MAGI) exceeds the relevant threshold:
- $250,000 for married taxpayers filing jointly and qualifying surviving spouses.
- $125,000 for married taxpayers filing separately.
- $200,000 for single and head-of-household filers.
These are MAGI thresholds, not taxable-income thresholds for the qualified-dividend worksheet. Whether dividend income is included in net investment income depends on the applicable rules and the taxpayer’s circumstances. See the IRS Net Investment Income Tax guidance.
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This explanation covers U.S. federal individual income-tax treatment for tax year 2025. It does not address state or local tax treatment, or the separate rules that may apply to nonresident taxpayers, trusts, or estates.
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