Dividends are taxed in one of two ways. Qualified dividends get the long-term capital gains rates of 0%, 15% or 20%, depending on taxable income. Ordinary dividends that are not qualified are taxed like wages, at 10% to 37%. Above $200,000 of modified AGI (single), a 3.8% surtax can apply on top.
The rest of this guide shows the 2026 thresholds, the holding-period test that decides which bucket a dividend falls into, and worked examples with the tax computed bracket by bracket.
What is the difference between qualified and ordinary dividends?
Every taxable dividend starts as an ordinary dividend. IRS Topic 404 describes qualified dividends as the subset of ordinary dividends that are taxed at the lower capital gain rates. Your broker reports both on Form 1099-DIV: box 1a is total ordinary dividends, box 1b is the qualified part.
Publication 550 lists three conditions for the lower rate:
- The dividend was paid by a U.S. corporation or a qualified foreign corporation.
- It is not one of the types the IRS excludes (see below).
- You met the holding period.
Common examples of dividends that are not qualified, per Publication 550:
- Capital gain distributions from mutual funds and REITs (these are taxed separately as long-term gains, see below).
- "Dividends" on deposits at credit unions, savings and loans and mutual savings banks, which are reported as interest.
- Dividends from tax-exempt organizations and farmers' cooperatives.
- Payments in lieu of dividends, for example when your shares were lent out for a short sale.
Publication 550 says money market fund payouts are reported as dividend income; check box 1b of the fund's 1099-DIV for any qualified part. A bank money market account pays interest instead (see money market account vs savings account).
What are the 2026 dividend tax rates?
Qualified dividends use the same thresholds as long-term capital gains. For tax year 2026 (returns filed in 2027), Revenue Procedure 2025-32 sets them as follows. The thresholds apply to taxable income, after the standard deduction ($16,100 single, $32,200 married filing jointly, $24,150 head of household).
| Rate on qualified dividends | Single | Married filing jointly | Head of household |
|---|---|---|---|
| 0% | up to $49,450 | up to $98,900 | up to $66,200 |
| 15% | $49,451 – $545,500 | $98,901 – $613,700 | $66,201 – $579,600 |
| 20% | over $545,500 | over $613,700 | over $579,600 |
Ordinary dividends are added to wages and other income and taxed at your marginal tax rate. For a single filer in 2026, the brackets are 10% up to $12,400, 12% up to $50,400, 22% up to $105,700, 24% up to $201,775, 32% up to $256,225, 35% up to $640,600 and 37% above.
How do qualified dividends "stack" on top of other income?
Qualified dividends are taxed last. Your ordinary income (wages, interest, ordinary dividends) fills the brackets first; the qualified dividends then sit on top of it. Only the part of the dividends that lands below $49,450 (single) is taxed at 0%; the part above it is taxed at 15%. This is why a qualified dividend can be split across two rates.
How much tax do you pay on $5,000 of dividends?
The table below shows the federal tax on an extra $5,000 of dividends for a single filer in 2026, for different amounts of other taxable income. It was computed with CalcWisp's own capital gains and paycheck tax modules (the same 2026 brackets the capital gains calculator and paycheck calculator use) and checked separately in Python.
| Other taxable income | Tax if qualified | Rate split | Tax if ordinary | Difference |
|---|---|---|---|---|
| $30,000 | $0 | all at 0% | $600 | $600 |
| $45,000 | $82.50 | $4,450 at 0%, $550 at 15% | $600 | $517.50 |
| $80,000 | $750 | all at 15% | $1,100 | $350 |
| $150,000 | $750 | all at 15% | $1,200 | $450 |
| $250,000 | $750 | all at 15% | $1,600 | $850 |
| $600,000 | $1,000 | all at 20% | $1,750 | $750 |
Two patterns stand out. At low incomes the gap is largest in relative terms, because qualified dividends can be completely tax-free. At high incomes the dollar gap grows again, because ordinary rates climb to 32% and 35% while qualified dividends stay at 15% or 20%. The table does not include the 3.8% surtax described below, or state income tax.
Worked example: wages plus a dividend portfolio
A single filer earns $75,000 in wages in 2026 and receives $5,000 in dividends, of which box 1b of Form 1099-DIV shows $4,000 as qualified.
- Gross income: $75,000 + $5,000 = $80,000.
- Taxable income: $80,000 − $16,100 standard deduction = $63,900.
- Ordinary part: $63,900 − $4,000 qualified = $59,900. Tax: 10% × $12,400 + 12% × $38,000 + 22% × $9,500 = $1,240 + $4,560 + $2,090 = $7,890.
- Qualified part: the ordinary part ($59,900) is already above $49,450, so all $4,000 is taxed at 15% = $600.
- Total federal income tax: $7,890 + $600 = $8,490.
If all $5,000 had been ordinary, the tax on $63,900 would be $8,770, so the qualified status saves $280. The dividend calculator projects how much income a portfolio produces each year; this calculation shows what is left after federal tax.
A low-income retiree
A single retiree has $30,000 of taxable ordinary income (after the deduction) and $12,000 of qualified dividends. Taxable income is $42,000, which is below $49,450, so the dividends are taxed at 0%. Only the $30,000 is taxed: 10% × $12,400 + 12% × $17,600 = $3,352.
What is the holding period for qualified dividends?
Publication 550 requires that you held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Count the day you sold but not the day you bought. For preferred stock whose dividends cover periods totaling more than 366 days, the test is more than 90 days in a 181-day window starting 90 days before the ex-dividend date.
The IRS's own example: shares bought July 7, 2025 (ex-dividend date July 14) and sold August 8, 2025 were held only 34 days of the window, so none of the dividend was qualified, even though box 1b of the 1099-DIV showed it as qualified. The holding period is your responsibility, not the broker's.
The ex-dividend date itself decides who gets the dividend: per the SEC's Investor.gov, it is usually the record date (or one business day earlier when the record date is not a business day), and buying on or after it means the seller receives the payment.
Are reinvested dividends taxed?
Yes. Publication 550 states that dividends used to buy more shares at fair market value must still be reported as income. If a plan lets you buy below market value, the income is the fair market value of the shares on the payment date. Keep records: each reinvested dividend raises your cost basis, so it reduces the taxable gain when you sell.
How are fund capital gain distributions taxed?
Mutual funds and REITs can pay capital gain distributions (Form 1099-DIV, box 2a). These are not qualified dividends, but the IRS taxes them as long-term capital gains regardless of how long you owned the fund. In practice they use the same 0/15/20% table as qualified dividends.
When does the 3.8% net investment income tax apply?
The net investment income tax adds 3.8% on the smaller of net investment income or the amount by which modified AGI exceeds $200,000 (single or head of household), $250,000 (married filing jointly) or $125,000 (married filing separately). IRS Topic 559 lists dividends as investment income. These thresholds are set by statute, not adjusted for inflation.
Example: a single filer has modified AGI of $230,000, including $20,000 of dividends. The excess over $200,000 is $30,000; the smaller of $20,000 and $30,000 is $20,000, so the surtax is 3.8% × $20,000 = $760, on top of the regular tax.
When do you need Schedule B?
According to IRS Topic 404, payers send a Form 1099-DIV for distributions of at least $10, and you must file Schedule B when taxable ordinary dividends exceed $1,500. Dividends under $10 that do not get a form are still taxable income. Large dividend income can also mean you need quarterly estimated tax payments, because nothing is withheld from most dividends.
Common mistakes
- Treating box 1b as final. A short holding period can turn "qualified" dividends into ordinary ones.
- Applying 0% to all dividends when income is "low". The 0% band is measured on total taxable income, with wages counted first.
- Forgetting reinvested dividends. They are taxable in the year paid, not when the shares are sold.
- Mixing up money market funds and accounts. Fund payouts are reported as dividends; bank account payouts are interest.
For a broader view of how investment income adds to the brackets, see 2027 tax brackets, and for retirement accounts where dividends grow without yearly tax, see 401(k) vs Roth 401(k).
This guide is for education only and is not tax or financial advice.