Qualified Dividends vs Ordinary Dividends: What to Know
What are qualified dividends vs ordinary dividends? Here's how to determine which is which, and what that means for you.


At some point in almost every investor's life, they'll be alerted to the fact that they're collecting "qualified dividends." That inevitably prompts the natural question: What are qualified dividends vs ordinary dividends?
Ultimately, the importance of this distinction has to do with how you're taxed on your dividends. The tax rate on qualified dividends is 15% for most taxpayers. (It's zero for single taxpayers with incomes under $44,625 and 20% for single taxpayers with incomes over $4492,301.) However, "ordinary dividends" (or "nonqualified dividends") are taxed at your normal marginal tax rate.
But on a more fundamental level: What exactly is a qualified dividend, and how do we know if the dividends paid by the stocks in our portfolios are qualified? And what investments pay out nonqualified dividends?

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Let's start by examining how qualified dividends were created in the first place. Then we'll explain how that affects the rules governing them and ordinary dividends today.
How qualified dividends came to be
The concept of qualified dividends began with the 2003 tax cuts signed into law by George W. Bush. Previously, all dividends were taxed at the taxpayer's normal marginal rate.
The lower qualified rate was designed to fix one of the great unintended consequences of the U.S. tax code. By taxing dividends at a higher rate, the IRS was incentivizing companies not to pay them. Instead, it incentivized them to do stock buybacks (which were untaxed) or simply hoard the cash.
By creating the lower qualified dividend tax rate that was equal to the long-term capital gains tax rate, the tax code instead incentivized companies to reward their long-term shareholders with higher dividends. It also incentivized investors to hold their stocks for longer to collect them.
The idea was to create a better kind of company and a better kind of investor.
It's debatable as to whether the lower rate had the desired effect; in the 17 years that have passed, companies (particularly in the tech sector) continue to hoard a lot of cash, and buybacks were credited with being one of the biggest drivers of the 2009-20 bull market.
But it's certainly true that dividends became more of a focus for both investors and the companies paying them following the 2003 tax reforms. Even tech darlings like Apple (AAPL) and Nvidia (NVDA) regularly pay dividends.
Qualified dividends vs ordinary dividends
To be a qualified dividend, the payout must be made by a U.S. company or a foreign company that trades in the U.S. or has a tax treaty with the U.S. That part is simple enough to understand.
The next requirement gets tricky.
The tax cut was designed to reward patient, long-term shareholders. So, to qualify, you must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date.
If that makes your head spin, just think of it like this: If you've held the stock for a few months, you're likely getting the qualified rate. If you haven't, you're probably not, or at least not yet.
Certain types of stocks don't make the cut.
For example, real estate investment trusts (REITs) and master limited partnerships (MLPs) typically do not pay qualified dividends. REIT dividends and MLP distributions have more complicated tax rules; however, in some cases, they might actually have lower effective tax rates.
Money market funds and other "bond like" instruments generally pay ordinary dividends. So do dividends paid out via an employee stock-option plan.
The good news: It's actually not your problem to figure this out if you really don't want to. Your broker will specify whether the dividends you received are qualified or not in the 1099-Div they send you at tax season.
But knowing whether you're being paid qualified dividends can help you plan properly. Perhaps you can arrange your dividend stock portfolio such that your lower-taxed qualified dividends are paid into your taxable brokerage account and your higher-taxed ordinary dividends are paid into your IRA.
If all of this is making your head spin, we can summarize like this:
Most "normal" company stocks you've held for at least two months will have their dividends qualified. Many unorthodox stocks – such as REITs and MLPs – and stocks held for less than two months generally will not.
Also, while we summarized the tax basics above, here's a look at how qualified dividends are taxed for every situation for the 2023 tax year:
Status | Taxable income | Tax rate |
---|---|---|
Single | $0 to $44,625 | 0% |
Row 1 - Cell 0 | $44,626 to $492,300 | 15% |
Row 2 - Cell 0 | $492,301 or more | 20% |
Married, filing jointly | $0 to $89,250 | 0% |
Row 4 - Cell 0 | $89,251 to $553,850 | 15% |
Row 5 - Cell 0 | $553,851 or more | 20% |
Head of household | $0 to $59,750 | 0% |
Row 7 - Cell 0 | $59,751 to $523,050 | 15% |
Row 8 - Cell 0 | $523,051 or more | 20% |
Married, filing separately | $0 to $44,625 | 0% |
Row 10 - Cell 0 | $44,626 to $276,900 | 15% |
Row 11 - Cell 0 | $276,901 or more | 20% |
Related content
- Stocks With the Highest Dividend Yields in the S&P 500
- Best Long-Term Investment Stocks to Buy
- 67 Best Dividend Stocks for Dependable Dividend Growth

Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor based in Dallas, Texas, where he specializes in dividend-focused portfolios and in building alternative allocations with minimal correlation to the stock market.
-
Black Friday 2023's Hottest Products — And How You Can Still Get Them
The list of the hottest products on Black Friday and Thanksgiving has been released, and many are still offering deals on Cyber Monday.
By Joey Solitro Published
-
How to Cushion Your Business Bank Account in an Uncertain Economy
Putting these practices in place can help your business weather the storm if economic disaster strikes.
By Clay Bethune Published
-
Stock Market Today: Stocks Keep Their Weekly Win Streak Alive
The main indexes closed mixed Friday, though all three nabbed a fourth straight weekly gain.
By Karee Venema Published
-
Stock Market Today: Stocks Resume Their Winning Ways
The major benchmarks rebounded from a rare down session to post broad-based gains Wednesday.
By Dan Burrows Published
-
Stock Market Today: Stocks Close Lower After Fed Minutes, Retail Earnings
Burlington was a big winner on the earnings front, while Kohl's slumped after its results.
By Karee Venema Published
-
Stock Market Today: Microsoft Gains Boost Stock Market
The blue chip stock popped on news the software giant has snagged OpenAI's ousted CEO to help lead an advanced AI research team.
By Karee Venema Published
-
Stock Market Today: Stocks Extend Weekly Win Streak Ahead of Thanksgiving
Although the main indexes were quiet to end the week, Gap stock soared after the retailer reported earnings.
By Karee Venema Published
-
Stock Market Today: Stocks Keep Climbing After Latest Inflation Data
While the main indexes gained ground on a welcome producer price index report, Target surged after disclosing an unexpected Q3 profit.
By Karee Venema Published
-
Stock Market Today: Stocks Close Mixed Ahead of October CPI
The main indexes struggled for direction Monday as investors await key inflation data.
By Karee Venema Published
-
What Is Common Stock?
Common stock allows for big returns – but owning it also comes with risk. Here, we look at what common stock is and dive into its pros and cons.
By Will Ashworth Published