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Qualified vs Ordinary Dividends: How Each Is Taxed in a Taxable Account
Taxes
A plain-language guide to qualified and non-qualified dividends: how Form 1099-DIV reports them, the federal rates for tax year 2026, the holding-period test, and how they interact with the net investment income tax and Medicare premium surcharges.
Published October 5, 2026 by Joel Miller, CFP. 11 min read.
Qualified dividends are ordinary dividends that meet IRS requirements, including a holding period, and are taxed at the 0%, 15%, or 20% long-term capital gain rates. Non-qualified dividends are taxed as ordinary income at regular rates. Both appear on Form 1099-DIV, and both count toward income thresholds for the net investment income tax and Medicare premium surcharges.
Reviewed October 5, 2026 by Joel Miller, CFP. Tax figures are for tax year 2026 unless a different year is stated. This article is educational. Individual circumstances vary, and it is not tax, legal, or investment advice.
One payment, two possible tax treatments
A dividend is a distribution of a corporation's earnings. The IRS explains in Topic no. 404 that dividends can be classified as either ordinary or qualified. Ordinary dividends are included in ordinary income. Qualified dividends are the portion that qualifies to be taxed at the lower capital gain rates.
The two labels are not separate piles of money. Every qualified dividend is also an ordinary dividend. Your Form 1099-DIV shows total ordinary dividends in box 1a and the portion that is qualified in box 1b, according to IRS Publication 550. "Non-qualified" is the everyday name for the ordinary dividends that are not in box 1b. The IRS says you can generally assume a dividend on common or preferred stock is ordinary unless the payer tells you otherwise.
This matters most in a taxable brokerage account, where dividends are reported each year. The account-type section below covers why it matters less inside retirement accounts.
Qualified vs non-qualified dividends side by side
The grid describes the federal rules at a general level. Your Form 1099-DIV and the payer's classification control what appears on your own return.
| Item | Qualified dividends | Non-qualified (ordinary) dividends | Best fit when you are asking |
|---|---|---|---|
| Where reported | Box 1b of Form 1099-DIV, also included in box 1a | Box 1a of Form 1099-DIV, less the amount in box 1b | "Which box on my form do I look at?" |
| Federal rate | 0%, 15%, or 20%, based on taxable income | Ordinary income rates, 10% to 37% for tax year 2026 | "Which rate schedule applies?" |
| Holding-period test | Required for the shares that paid the dividend | Not required | "Did I hold the shares long enough?" |
| Included in AGI and MAGI | Yes | Yes | "Does it affect my income thresholds?" |
| Counts as net investment income | Yes | Yes | "Could the 3.8% surtax apply?" |
| Typical payer | U.S. corporations and qualified foreign corporations | Any payer, including those whose dividends fail a requirement | "Who paid it?" |
| Capital gain distributions | Not qualified dividends, even if shown in box 1b | Reported separately as long-term capital gains | "Why is a fund distribution taxed differently?" |
Funds may classify only part of a distribution as qualified. In one IRS example in Publication 550, a fund paid 10 cents per share and advised that 2 cents of it was eligible to be treated as qualified, so the Form 1099-DIV showed $1,000 of ordinary dividends and $200 of qualified dividends. The shareholder in that example still had to meet the holding period for the fund shares, and did not, so none of it was qualified for that year.
Federal tax rates for tax year 2026
Qualified dividends use the same maximum rates as net capital gain. The IRS sets the breakpoints each year in a revenue procedure. For tax years beginning in 2026, they are listed in section 4.03 of Rev. Proc. 2025-32, and the IRS summarizes the year's adjustments in its tax year 2026 inflation adjustments release.
Qualified dividend rate by taxable income, tax year 2026
| Filing status | 0% rate applies up to | 15% rate applies up to | 20% rate applies above |
|---|---|---|---|
| Married filing jointly and surviving spouse | $98,900 | $613,700 | $613,700 |
| Single | $49,450 | $545,500 | $545,500 |
| Head of household | $66,200 | $579,600 | $579,600 |
| Married filing separately | $49,450 | $306,850 | $306,850 |
Source: IRS, Rev. Proc. 2025-32, section 4.03 (tax year 2026). Amounts are taxable income, not gross income. The IRS's Topic no. 409 page may show prior-year amounts, so confirm the tax year before comparing figures.
Non-qualified dividends are added to ordinary income and taxed at the regular bracket rates, which are 10%, 12%, 22%, 24%, 32%, 35%, and 37% for tax year 2026. Selected brackets from the same revenue procedure (section 4.01):
| Rate | Married filing jointly: taxable income over | Single: taxable income over |
|---|---|---|
| 12% | $24,800 | $12,400 |
| 22% | $100,800 | $50,400 |
| 24% | $211,400 | $105,700 |
| 32% | $403,550 | $201,775 |
| 35% | $512,450 | $256,225 |
| 37% | $768,700 | $640,600 |
Source: IRS, Rev. Proc. 2025-32, section 4.01 (tax year 2026). Federal figures only. State income tax treatment varies and is not covered here.
The holding-period test
A dividend can only be qualified if it meets all of the requirements in Publication 550: it was paid by a U.S. corporation or a qualified foreign corporation, it is not one of the excluded types, and you meet the holding period.
For common stock, the IRS requires that you held the shares for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the first date after the dividend is declared on which a buyer is not entitled to receive the next dividend payment. When counting days, include the day you sold but not the day you bought.
For preferred stock, the IRS test is more than 90 days during a 181-day period that begins 90 days before the ex-dividend date, if the dividends are due to periods totaling more than 366 days. Otherwise the common-stock rule applies.
The IRS illustrates the test with two cases in Publication 550. In one, shares were held 34 days of the window and the dividends were not qualified. In the other, shares bought the day before the ex-dividend date and sold 63 days later met the test, because 61 days fell inside the window.
Some days are excluded from the count. Per Publication 550, you cannot count a day on which you had an option to sell, were under a contractual obligation to sell, or had an open short sale of substantially identical stock or securities. You also cannot count a day on which you had granted an option to buy substantially identical stock or securities, or on which your risk of loss was diminished by holding other substantially similar or related positions. For fund shares, the fund determines what portion of a distribution is eligible, and you still need to meet the holding period for your own fund shares.
Dividends that are not qualified
Publication 550 lists payments that are not qualified dividends even if they appear in box 1b. They include capital gain distributions, dividends paid on deposits with savings institutions and credit unions (reported as interest), dividends from tax-exempt organizations and farmers' cooperatives, dividends on employer securities held by an employee stock ownership plan, payments in lieu of dividends where you know or have reason to know they are not qualified, and dividends to the extent you are obligated to make related payments for substantially similar property.
Two related items are worth keeping separate. A return of capital is not a dividend. The IRS says it reduces the adjusted cost basis of your shares, and amounts beyond basis are taxable capital gain (Topic no. 404). Capital gain distributions from funds are always reported as long-term capital gains.
An illustration of how the rates differ
The table below is a hypothetical illustration for educational purposes only. It is not a projection, a calculator, or a recommendation, and it does not describe any investment. It applies tax year 2026 federal rates to $1,000 of dividends for a married couple filing jointly, assuming the dividends fall entirely within the rate band shown.
Illustration: federal income tax on $1,000 of dividends, married filing jointly, tax year 2026
| Example taxable income | Rate if qualified | Tax if qualified | Ordinary bracket | Tax if non-qualified |
|---|---|---|---|---|
| $90,000 | 0% | $0 | 12% | $120 |
| $300,000 | 15% | $150 | 24% | $240 |
| $450,000 | 15% | $150 | 32% | $320 |
| $700,000 | 20% | $200 | 35% | $350 |
Sources: IRS, Rev. Proc. 2025-32, sections 4.01 and 4.03 (tax year 2026). The illustration excludes state tax, the net investment income tax described below, and the way added income can move part of a dividend into a higher band. Actual results depend on your full return.
Income thresholds: the 3.8% tax and Medicare premiums
Dividend type changes the income tax rate. It does not remove a dividend from the income measures that other rules use.
Net investment income tax (NIIT). The IRS explains in Topic no. 559 that a 3.8% tax applies to the lesser of net investment income or the amount by which modified adjusted gross income (MAGI) exceeds a threshold. Net investment income includes dividends, and the IRS does not distinguish qualified from non-qualified for this purpose. The thresholds are $250,000 for married filing jointly, $200,000 for single or head of household, and $125,000 for married filing separately. The IRS notes in its NIIT questions and answers that these thresholds are not indexed for inflation, so they are the same for tax year 2026.
Medicare premium surcharges (IRMAA). The Social Security Administration sets higher Part B and prescription drug premiums for higher-income beneficiaries using MAGI, defined as adjusted gross income plus tax-exempt interest (SSA). Dividends of both types are part of adjusted gross income, so they can raise MAGI. For 2026 premiums, SSA generally uses the tax return for 2024, and the first surcharge applies when MAGI is above $109,000 for single filers or $218,000 for joint filers. CMS publishes the full 2026 Part B table. A qualified dividend gets a lower income tax rate, but it can still move a household across a Medicare threshold.
Both rules look at the year's total income, so dividend decisions are often reviewed alongside other income such as RSU vests, Roth conversions, and capital gains. The article on managing capital gains taxes in retirement covers the capital gain side of the same thresholds.
Where taxable and tax-advantaged accounts come in
The qualified vs non-qualified distinction mostly matters in taxable accounts, where dividends are reported on Form 1099-DIV each year.
- Taxable brokerage account: dividends are taxed in the year paid, at the rate that matches their classification. This is where the holding period, NIIT, and IRMAA interactions apply.
- Traditional IRA: dividends are generally not taxed when earned, but Publication 590-B says distributions that you include in income are taxed as ordinary income, with no capital gain treatment, so the original dividend classification does not carry through.
- Roth IRA: per Publication 590-B, distributions are not taxed if you meet the IRS requirements. Requirements and limits apply.
Households sometimes consider which investments sit in which account type, a topic called asset location. Trade-offs include liquidity, required distributions, estate goals, and the mix of the overall portfolio, so tax treatment is only one input. Our guide to asset location across Roth, brokerage, and traditional IRA accounts walks through those trade-offs, and the video on the taxable brokerage account in retirement covers how that account is used.
Frequently asked questions
Are all dividends on stocks qualified?
No. Qualified status depends on the payer, the type of dividend, and your holding period. Box 1b of your Form 1099-DIV shows the amount the payer classified as qualified. Dividends that are not in box 1b are taxed as ordinary income.
Are non-qualified dividends the same as ordinary dividends?
In everyday use, yes. Technically, "ordinary dividends" in box 1a include the qualified portion, so non-qualified dividends are the part of box 1a that is not in box 1b.
Can a dividend be qualified on one return and not the next?
Yes. The test is applied to each dividend, including the holding period around its ex-dividend date. The same holding can produce qualified dividends in one period and non-qualified dividends in another if the shares were bought or sold close to the ex-dividend date.
Do I report qualified dividends separately from ordinary dividends?
Total ordinary dividends and the qualified amount are both reported on Form 1040. The IRS says taxable ordinary dividends over $1,500 are reported on Schedule B, and the Form 1040 instructions explain how to calculate tax on qualified dividends and net capital gain.
Do reinvested dividends still count?
Per Publication 550, if you reinvest dividends to buy more stock at fair market value, you still report the dividends as income. The classification is set when the dividend is paid, not when it is reinvested.
Does a dividend change my Medicare premium?
It can. Both qualified and non-qualified dividends are included in adjusted gross income, which feeds the MAGI figure SSA uses for income-related premium adjustments. Whether a threshold is crossed depends on total income for the year SSA uses.
Next step
If you want to talk through how investment income, equity compensation, and retirement income fit together on your tax return, you can schedule a discovery meeting. Flames FP's tax services are limited and depend on the membership, as described on the tax planning and filing page. The page for high-income families describes how the firm approaches household-level coordination, and the pricing page lists current membership terms. This article reflects rules and published figures as of the review date above. Tax rules change, and your situation may differ.
Sources
All sources accessed October 5, 2026.
- IRS, Topic no. 404, Dividends and other corporate distributions
- IRS, Publication 550 (2025), Investment Income and Expenses: ordinary dividends, qualified dividends, holding period, and dividends that are not qualified
- IRS, Rev. Proc. 2025-32: tax year 2026 rate tables (section 4.01) and maximum capital gains rate amounts (section 4.03)
- IRS, Tax year 2026 inflation adjustments release
- IRS, Topic no. 409, Capital gains and losses
- IRS, Topic no. 559, Net investment income tax
- IRS, Questions and answers on the net investment income tax
- IRS, Publication 590-B (2025), Distributions from Individual Retirement Arrangements
- Social Security Administration, Medicare premiums: rules for higher-income beneficiaries
- CMS, 2026 Medicare Parts A & B premiums and deductibles
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