Dividend Taxes in the U.S.: What to Know Before Filing

Key takeaways

• Dividends fall into two main types, qualified and ordinary, and they are taxed at different rates.

• A dividend is “qualified” only if the payer and your holding period pass specific IRS tests.

• Your Form 1099-DIV shows what you received and whether credits or extra taxes may apply, for example the Net Investment Income Tax.

Dividends can be a steady source of cash, yet the tax rules behind them are not always obvious. The rate you pay depends on the type of dividend, how long you held the shares, and your income level. This guide explains the categories, the holding-period test, how to read Form 1099-DIV, and what to expect with cross-border dividends.

What exactly is a dividend?

A dividend is a distribution of profits from a company or fund to shareholders. The most common form is cash deposited to your account. Some issuers pay stock dividends (new shares) or one-time special dividends after events such as asset sales. If a payment is labeled return of capital, it is not a dividend for that year’s income; it reduces your cost basis in the shares and may affect future gains.²

The four dividend dates that matter

• Declaration date: The company’s board announces the amount and the timetable.

• Ex-dividend date: Buy before this date to receive the upcoming dividend; purchases on or after the ex-date do not get it. The ex-date is set by exchange rules once the record date is known.⁵

• Record date: The company’s snapshot of who will be paid.

• Payment date: When cash or stock is delivered.

These dates are not just logistics. The ex-dividend date anchors the IRS holding-period test that decides whether a dividend can qualify for lower tax rates.¹ ⁵

Qualified vs. ordinary dividends: why the label changes your tax rate

For U.S. federal taxes, dividends fall into two buckets.

Qualified dividends

Qualified dividends get the long-term capital gains rates of 0%, 15%, or 20%, depending on your taxable income and filing status. To qualify, two tests generally must be met:

• Eligible payer. Usually a U.S. corporation or a qualifying foreign corporation.

• Holding period. For common stock, you held the shares more than 60 days during the 121-day window that starts 60 days before the ex-dividend date.¹

Example: If the ex-date is June 1, the 121-day window runs from April 2 through September 1. You need at least 61 days of holding within that window. Selling too soon can turn a qualified dividend into an ordinary one.

Ordinary (non-qualified) dividends

Dividends that do not meet these rules are taxed at your regular income rates. Typical examples include many REIT distributions, some money market payouts, and dividends where the holding-period test was not met.¹

Where to see the split

Your broker reports dividends on Form 1099-DIV each year.

• Box 1a shows total ordinary dividends.

• Box 1b shows the qualified portion of Box 1a that gets capital-gains rates.

• Box 2a reports capital gain distributions from funds.

• Box 7 shows foreign tax paid, which may support a foreign tax credit claim.²
  
  

How the holding-period rule works

The IRS wants to prevent “dividend capture” where shares are held only briefly to collect a payment. For most common stock, count only days when your risk of loss was not hedged, and you must exceed 60 days of holding within the 121-day window anchored to the ex-dividend date. Preferred stock can have a longer test.¹

Dividend types, where they appear, and how they are taxed

Use this as a fast map when your 1099-DIV arrives.

This table is a shorthand. Always confirm details with the form instructions.

The extra layer for higher earners: the 3.8% NIIT

If your modified AGI (adjusted gross income) exceeds the threshold for your filing status, you may owe the Net Investment Income Tax of 3.8% on the lesser of your net investment income or the amount by which your income exceeds the threshold. Dividends are part of net investment income for this purpose.³ ⁷

Cross-border dividends: withholding and credits

Dividends do not always stop at borders.

• U.S. dividends paid to non-U.S. persons. Typically subject to 30% withholding, unless a tax treaty reduces the rate and the proper forms are on file. Publication 515 has the current rules and exceptions.⁸

• Foreign dividends paid to U.S. investors. A foreign country may withhold tax before you receive the cash. You may be able to claim a foreign tax credit on Form 1116 to offset part of the U.S. tax on that income.⁴
  
  

Practical moves before you file

• Read the form. Review 1099-DIV Boxes 1a, 1b, 2a, and 7 so you know which rates or credits might apply.²

• Mind the dates. Check your holding period around the ex-dividend date before selling. Missing the window can change the tax rate.¹ ⁵

• Watch the NIIT threshold. If you are near it, consider timing and account placement with your tax advisor.³

• Track reinvestment. Reinvested dividends are still taxable and increase your basis for future gain calculations.²
  
  

FAQ

Are reinvested dividends taxable?
Yes. Reinvesting does not change taxability; it increases your cost basis by the amount reinvested.²

Do all fund dividends qualify for lower rates?
No. Many do, but plenty are ordinary. Your 1099-DIV shows the split between Boxes 1a and 1b.²

What if I buy a stock right before the ex-date?
If you do not meet the 61-of-121-day rule, that dividend is treated as ordinary even if you later hold the stock for a long time.¹

Can foreign withholding be recovered?
Often partially. If Box 7 shows foreign tax, you may be able to claim the foreign tax credit on Form 1116, subject to IRS limits and documentation.⁴

Do non-U.S. investors pay U.S. tax on U.S. dividends?
Generally yes, through withholding at source, often 30% unless a treaty applies and the correct documentation is provided.⁸

Conclusion

Dividend taxes hinge on a few definitions and dates. Identify whether your payments are qualified or ordinary, confirm your holding period, and review 1099-DIV for credits or extra taxes. With that checklist, reporting gets much easier.

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Citations

¹ IRS — Publication 550, “Investment Income and Expenses,” qualified dividends and holding-period rules — 2025
² IRS — Instructions for Form 1099-DIV — 2024
³ IRS — Net Investment Income Tax overview — 2025
⁴ IRS — Foreign Tax Credit (Form 1116) — 2025
⁵ U.S. SEC / Investor.gov — “Ex-Dividend Dates: When Are You Entitled to Dividends?” — 2025
⁸ IRS — Publication 515, “Withholding of Tax on Nonresident Aliens and Foreign Entities” — 2025

Information from these sources was taken on October 16, 2025.

The content within this blog post is for informational purposes only and is not intended to constitute financial, legal, immigration, or tax advice. All figures and data are based on publicly available sources at the time of writing and are subject to change. Actual conditions may vary depending on location, timing, and personal circumstances. We recommend consulting official government resources or a licensed professional for the most up-to-date and personalized guidance.