What are Qualified Dividends?
Qualified Dividends are distributions of the earnings and profit of a qualified company. Payments must be made by a U.S. company or a company incorporated in a U.S. possession in a foreign country that has a treaty with the U.S., including the exchange information program or if the stock trades on a U.S. stock exchange. On top of that, you must own the stock for at least 61 days during the 121 day period.
Tax Brackets
Qualified dividends are eligible to get taxed at a lower tax rate compared to ordinary dividends.
- If your tax bracket is greater than 10% but less than 15% your tax rate is for qualified dividends are 0%.
- Your tax bracket is greater than 15% but less than 39.6% your tax rate is for qualified dividends are 15%.
- Your tax bracket is greater than 39.6% your tax rate is for qualified dividends are capped at 20%.
The following requirements must be met to be taxed at the maximum rate.
If you invest in a share of a stock and that stock makes a profit,
- the corporation that issues you a dividend payment must be a U.S corporation or a qualified foreign corporation,
- the dividends must be qualifying dividends,
- you must meet the holding period
(calculated by the number of days you owned the stock including the date of sale)
Holding Period Requirement
In order to fulfill the holding period requirement, you must have held the stock for more than 60 days during the 121-days, without any calls or short sales while holding the stock. If you have preferred stock, you must have held the stock for more than 90 days during the 181-days. This begins 90 days before the date of sale if the dividends are limited to more than 366 days.
1099-DIV
Every company that pays you more than $10 will report the total annual payment on an income statement. On Form 1099-DIV, the total amounts of qualified dividends are reported in Box 1b. Qualified Dividends are typically reported on a Schedule B.
