Qualified dividends tax rate for 2026, and how ordinary dividends differ

What is the qualified dividends tax rate?

The qualified dividends tax rate is the preferential 0%, 15% or 20% rate the IRS applies to dividends that meet the holding period and payer rules. It is not a separate rate table: qualified dividends are stacked on top of your ordinary income and taxed with the long-term capital gains brackets, per Topic 404.

A qualified dividend is an ordinary dividend from a U.S. corporation or qualifying foreign corporation that you held long enough before and after the ex-dividend date. Everything else your broker reports as a dividend is taxed like wages.

Qualified vs ordinary dividends: how is each taxed?

Ordinary dividends tax is figured at your regular marginal rate. Qualified dividends get the capital gain rates. The difference can be as large as 37% versus 20% for a high earner, or 12% versus 0% for a retiree with modest income.

Common dividends that do not qualify include money market fund payouts (which are really interest), most REIT distributions, dividends on shares held too briefly, payments tied to short sales, and dividends paid on employer stock in an ESOP that the company deducts. Mutual fund capital gain distributions are a separate item: they are always long-term capital gains, whatever your holding period in the fund.

Dividend tax rate 2026 by filing status

These thresholds come from Rev. Proc. 2025-32 and apply to returns filed in 2027. They are measured against total taxable income, not just your dividends.

For comparison, the 2025 0% ceiling was $48,350 single and $96,700 joint. The 2027 thresholds are not yet announced; the IRS usually publishes them in October or November, as covered on when the 2027 tax brackets will be released.

What makes a dividend qualified? The 60-day holding rule

For common stock, you must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date, according to the Form 1099-DIV instructions. For certain preferred stock the test is more than 90 days in a 181-day window.

Holding period example

Say a stock goes ex-dividend on June 1. The 121-day window runs from April 2 through July 31. If you buy on May 20 and sell on June 15, you held it for 26 days in that window, so the dividend is ordinary. Buy on May 20 and hold through at least July 20 and it qualifies. The day you buy does not count; the day you sell does.

Brokers do their best to apply this test when filling in box 1b, but they cannot see hedges or positions at another firm. If you sold shortly after an ex-dividend date or held offsetting options, check the count yourself before relying on the form.

Where are qualified dividends on Form 1099-DIV?

• Box 1a, total ordinary dividends: all dividends, including the qualified ones. This goes on Form 1040 line 3b.
• Box 1b, qualified dividends: the portion of box 1a eligible for 0%, 15% or 20%. This goes on Form 1040 line 3a.
• Box 2a, total capital gain distributions: long-term gains from funds, reported on Schedule D or directly on Form 1040 line 7 if you have no other gains.
• Box 5, section 199A dividends: qualified REIT dividends, usually taxed as ordinary but eligible for the qualified business income deduction.
• Box 7, foreign tax paid: may support a foreign tax credit.
• Box 12, exempt-interest dividends: from municipal bond funds; generally not taxed federally.

If your taxable ordinary dividends are over $1,500, you also list each payer on Schedule B. Tax software then runs the Qualified Dividends and Capital Gain Tax Worksheet from the Form 1040 instructions to apply the lower rates.

Worked example: how much tax on $15,000 of dividends?

A single filer has $60,000 of taxable income in 2026, of which $15,000 is qualified dividends and $45,000 is wages after the standard deduction. Figures use the 2026 rate schedule.

1. Tax the $45,000 of ordinary income at regular rates: $1,240 plus 12% of $32,600, which is $5,152.
2. Stack the dividends from $45,000 to $60,000. The first $4,450 (up to $49,450) is taxed at 0%.
3. The remaining $10,550 is taxed at 15%, or $1,582.50.
4. Total federal income tax: $6,734.50.

If the same $15,000 had been ordinary dividends, tax on $60,000 of ordinary income would be $7,912. The qualified treatment saves $1,177.50. For a married couple with $90,000 of taxable income including $20,000 of qualified dividends, every dividend dollar sits under the $98,900 line and is taxed at 0%.

To see how the stacking works for sold shares as well as dividends, compare the full 2026 capital gains tax rates or start at the capital gains tax guide.

What to do if box 1b looks wrong

1. Compare your trade dates against each ex-dividend date using the 61-day test above.
2. Ask the broker for a corrected Form 1099-DIV if their classification is wrong; many issue corrections into March.
3. Report only the amount you can support as qualified on line 3a, and keep your trade confirmations.
4. If you already filed and a corrected form changes your tax, file Form 1040-X.

Children with large dividend income face a different rule: unearned income above $2,700 in 2026 can be taxed at the parent's rate. See the kiddie tax rules.