What Is a Qualified Dividend?

A qualified dividend is an ordinary dividend that meets specific payer, dividend-type, holding-period, and risk-of-loss requirements and is eligible for the federal 0%, 15%, or 20% maximum rates generally used for net capital gain. Qualified dividends are reported in Form 1099-DIV box 1b and are already included in box 1a ordinary dividends.

A payer's box 1b amount is important but not always final. The taxpayer must still satisfy the holding-period and related-position rules.

Requirements for qualified treatment

In general, all of the following must be true:

1. The dividend is paid by a U.S. corporation or an eligible qualified foreign corporation.
2. It is not in a category excluded from qualified treatment.
3. The shareholder meets the applicable holding-period rule.
4. The shareholder's risk of loss was not diminished in a way that prevents the days from counting.

Certain foreign corporations qualify through U.S. territory incorporation, an eligible comprehensive tax treaty, or readily tradable stock on an established U.S. securities market. A passive foreign investment company generally does not qualify.

The common-stock holding-period test

For most common stock, the taxpayer must hold the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Count the day the shares are disposed of but not the day acquired. "More than 60" means at least 61 qualifying days.

Example: Elena receives a dividend listed as qualified by her broker but sells the shares after only 40 qualifying days within the window. That dividend does not receive qualified treatment on her return. If she holds the shares for 65 qualifying days with no diminished-risk issue, the holding-period test is generally satisfied.

Preferred stock can use a more-than-90-day test during a 181-day period when dividends are attributable to periods exceeding 366 days. Options, short sales, hedges, and related positions can reduce the days treated as held because the taxpayer's risk of loss is diminished.

Dividends that are not qualified

Common exclusions include capital gain distributions; certain dividends from tax-exempt organizations, cooperatives, and financial institutions; dividends on employer securities held by an ESOP in specified circumstances; payments in lieu of dividends; and dividends linked to an obligation to make related payments on a short position.

REIT dividends are often ordinary and nonqualified, although a REIT statement can separately report capital gain distributions or other categories. A Section 199A deduction may apply to certain qualified REIT dividends, which is different from qualified-dividend treatment.

Federal tax-rate calculation

Qualified dividends use the Qualified Dividends and Capital Gain Tax Worksheet or, when required, the Schedule D Tax Worksheet. They stack on top of other taxable income, so the rate cannot be determined by looking at the dividend alone.

For 2026, the 0% maximum-rate ceiling is $49,450 for single and married-filing-separately taxpayers, $98,900 for joint filers and surviving spouses, and $66,200 for heads of household. The 20% rate begins when taxable income exceeds $545,500, $306,850, $613,700, and $579,600, respectively. Amounts between applicable thresholds are generally in the 15% range.

These are taxable-income thresholds. Deductions, ordinary income, net capital gain, and qualified dividends interact in the worksheet. The 3.8% net investment income tax can apply separately when modified adjusted gross income exceeds its statutory threshold.

Example: Elena has $3,200 in box 1a and $2,400 in box 1b. If she meets all requirements, $2,400 enters the preferential-rate computation, while the other $800 is taxed at ordinary federal rates. She still reports the entire $3,200 ordinary-dividend total.

Where qualified dividends are reported

For 2025 returns, qualified dividends generally appear on Form 1040 or 1040-SR line 3a, while total ordinary dividends appear on line 3b. Schedule B lists ordinary dividend payers when required but does not replace the qualified-dividend tax worksheet.

Qualified dividends can also pass through on Schedule K-1. The recipient must combine all sources and evaluate holding-period or entity-provided information where relevant. Corrected brokerage statements can change both the income classification and tax calculation.

California treatment

California does not provide a special lower rate for qualified dividends. Taxable dividends are generally taxed at regular California rates. The qualified classification remains important for the federal return, and the underlying income still flows into California taxable income unless a specific state adjustment applies.

Because California residents generally report worldwide income, a foreign dividend can be included even when it does not qualify federally. Foreign tax credits and California credit rules require separate analysis.

Common mistakes

• Adding Form 1099-DIV boxes 1a and 1b
• Assuming box 1b overrides the taxpayer holding-period test
• Counting the purchase day instead of the sale day
• Treating "60 days" as sufficient when the rule requires more than 60
• Ignoring options, hedges, or diminished risk of loss
• Treating capital gain distributions as qualified dividends
• Applying 0%, 15%, or 20% to the dividend without taxable-income stacking
• Assuming California offers the same preferential rate

Frequently asked questions

Related terms

• Ordinary Dividend
• Capital Gain Distribution
• Holding Period
• Long-Term Capital Gain

Official sources

• IRS — Publication 550, Investment Income and Expenses
• IRS — Topic No. 404, Dividends and Other Corporate Distributions
• IRS — Rev. Proc. 2025-32, 2026 inflation adjustments
• IRS — Form 1099-DIV and instructions
• California FTB — 2025 Schedule CA (540) instructions

The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.