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Qualified dividend status can save you a lot of money because you’ll only pay the long-term capital gains rate on those payouts, instead of the ordinary income tax rate. Ordinary Dividends
Ordinary Dividends vs. Qualified Dividends: The Background Before 2003, all dividends were ordinary dividends and recipients paid taxes on them at their usual individual marginal rate.
The rates on qualified dividends range from 0 to 23.8%. The category of qualified dividend (as opposed to an ordinary dividend) was created in the Jobs and Growth Tax Relief Reconciliation Act of 2003 – previously, there was no distinction and all dividends were either untaxed or taxed together at the same rate. [1] To qualify for the ...
Dividends paid to investors by corporations come in two kinds – ordinary and qualified – and the difference has a large effect on the taxes that will be owed. Ordinary dividends are taxed as ...
The Capital Gains and Qualified Dividends Worksheet in the Form 1040 instructions specifies a calculation that treats both long-term capital gains and qualified dividends as though they were the last income received, then applies the preferential tax rate as shown in the above table. [5]
Whatever your income tax bracket, that's the rate you pay on ordinary dividends. One way to remember the major distinction here is that "ordinary dividends" are taxed at ordinary income tax rates.