Dividend Tax Rates
Qualified vs. ordinary dividend tax rates, REIT rules, and the Section 199A deduction
Key Numbers
Qualified
0% / 15% / 20%
Ordinary
10–37%
REIT Effective
29.6% Max
NIIT
+3.8% over $200K
Not all dividends are taxed equally. Qualified dividends receive favorable capital gains rates (0%, 15%, or 20%), while ordinary (non-qualified) dividends are taxed at your regular income rate — up to 37%. The distinction depends on the source of the dividend, how long you held the stock, and where it’s held.
| Dividend Type | Tax Rate | Common Sources | 1099-DIV Box |
|---|---|---|---|
| Qualified | 0% / 15% / 20% | US corporations, qualified foreign corps, most ETFs | Box 1b |
| Ordinary (Non-Qualified) | 10% – 37% | Money markets, bonds, stocks held <61 days | Box 1a (total) |
| REIT Dividends | Up to 29.6%* | Real estate investment trusts | Box 5 (§199A) |
| Return of Capital | 0% (deferred) | Some MLPs, REITs — reduces cost basis | Box 3 |
| Capital Gain Distributions | 0% / 15% / 20% | Mutual funds, REITs | Box 2a |
*REIT ordinary dividends are taxed as ordinary income but eligible for the 20% Section 199A deduction, reducing the effective top rate from 37% to 29.6%. Ordinary dividends are taxed at your federal income tax bracket — see the Federal Tax Brackets reference for full rate tables.
Net Investment Income Tax (NIIT): An additional 3.8% tax applies to all dividend income (qualified and ordinary) if modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). This can raise the effective top rate on qualified dividends to 23.8%.
Qualified Dividend Tax Brackets
Qualified dividends are taxed at the same preferential rates as long-term capital gains. To qualify, dividends must come from an eligible source and you must meet a holding period requirement.
2025 Tax Year (Filed in 2026)
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351 – $533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701 – $600,050 | Over $600,050 |
| Married Filing Separately | Up to $48,350 | $48,351 – $300,025 | Over $300,025 |
| Head of Household | Up to $64,750 | $64,751 – $566,700 | Over $566,700 |
Source: IRS Rev. Proc. 2024-40. Thresholds based on taxable income.
2026 Tax Year (Filed in 2027)
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $49,950 | $49,951 – $551,350 | Over $551,350 |
| Married Filing Jointly | Up to $98,900 | $98,901 – $620,050 | Over $620,050 |
| Married Filing Separately | Up to $49,950 | $49,951 – $310,025 | Over $310,025 |
| Head of Household | Up to $66,750 | $66,751 – $583,050 | Over $583,050 |
Source: IRS Rev. Proc. 2025-32. OBBBA made the TCJA qualified dividend rates permanent.
Qualifies for Lower Rates
US corporations, foreign corps on major US exchanges or in tax treaty countries, most stock mutual funds and ETFs, and ADRs (American Depositary Receipts) — provided you hold the stock for more than 60 days during the 121-day window around the ex-dividend date.
Does NOT Qualify
REITs (separate §199A rules apply), master limited partnerships (MLPs), money market funds, credit union “dividends” (actually interest), stocks held fewer than 61 days, and dividends from tax-exempt organizations.
REITs, MLPs & Account Placement
REITs, MLPs, and foreign dividends each follow distinct tax rules. Choosing the right account type for each can meaningfully affect your after-tax returns.
REITs & the Section 199A Deduction
REIT dividends are taxed as ordinary income, but the 20% Section 199A (QBI) deduction — made permanent by the One Big Beautiful Bill Act (July 2025) — reduces the effective top rate from 37% to 29.6%. To claim it, you must hold REIT shares for at least 46 days during the 91-day period beginning 45 days before the ex-dividend date.
| REIT Distribution Type | Tax Treatment | 1099-DIV Box |
|---|---|---|
| Ordinary REIT Dividends | Ordinary income with 20% §199A deduction | Box 5 |
| Capital Gain Distributions | Long-term capital gains rates (0/15/20%) | Box 2a |
| Return of Capital | Not taxed now; reduces cost basis | Box 3 |
Master Limited Partnerships (MLPs)
MLP distributions are often mostly return of capital, which defers taxes by reducing your cost basis. The ordinary income portion is taxed at your regular rate and may also qualify for the §199A deduction. MLPs issue K-1 forms (not 1099-DIVs), which arrive late and can require state filings. Holding MLPs in IRAs can create unrelated business taxable income (UBTI) — amounts over $1,000 become taxable even inside a tax-sheltered account.
Tax-Efficient Account Placement
| Dividend Type | Suggested Account | Reasoning |
|---|---|---|
| Qualified Dividends | Taxable brokerage | Already receive favorable 0/15/20% rates |
| REIT Dividends | Tax-deferred (401k/IRA) | Taxed as ordinary income; shelter in tax-deferred account |
| High-Yield Bonds | Tax-deferred (401k/IRA) | Interest taxed as ordinary income |
| MLPs | Taxable (usually) | UBTI issues in IRAs; ROC benefits lost in tax-deferred |
| Growth Stocks (low div) | Roth IRA | Tax-free growth; maximize long-term compounding |
Tax-free accounts: Dividends in Roth IRAs, Roth 401(k)s, 529 plans, and Coverdell ESAs are completely tax-free on qualified distributions. Traditional IRAs and 401(k)s defer taxes until withdrawal (at ordinary income rates).
Sources
- 1.IRS — Topic No. 404: Dividends
- 2.IRS — Publication 550: Investment Income and Expenses
- 3.IRS — Revenue Procedure 2024-40 (2025 Inflation Adjustments)
- 4.IRS — Revenue Procedure 2025-32 (2026 Inflation Adjustments)
- 5.IRS — Qualified Business Income Deduction (Section 199A)
- 6.Tax Foundation — 2026 Tax Brackets and Federal Income Tax Rates
This content is for educational and informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for guidance tailored to your situation.