How Are Dividends Taxed? Dividend Tax Rates for 2023-2024 - NerdWallet (2024)

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If you're an investor, you might be familiar with dividends, which are shares of a company’s profits that are distributed to shareholders. But if you were paid dividends in 2023, be aware they aren’t free money — they’re usually taxable income.

How and when you own an investment that pays dividends can dramatically change the tax rate you pay.

There are many exceptions and unusual scenarios with special rules (see IRS Publication 550 for the details), but here’s generally how dividend tax works.

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How are dividends taxed?

For tax purposes, there are two kinds of dividends: qualified and nonqualified (sometimes called "ordinary").

What is the dividend tax rate?

The tax rate on qualified dividends is 0%, 15% or 20%, depending on taxable income and filing status. The tax rate on nonqualified dividends follows ordinary income tax rates and brackets.

In both cases, people in higher tax brackets pay a higher dividend tax rate.

» MORE: See which tax bracket you're in

What are qualified dividends?

Qualified dividends come with the advantage of a lower tax rate. Three things usually determine whether a dividend is qualified:

1. It is paid by a U.S. corporation or qualifying foreign entity. For many investors, this condition is easy to satisfy.

2. It is actually a dividend in the eyes of the IRS. Some things don’t count as dividends, including:

  • Premiums that an insurance company pays back.

  • Annual distributions credit unions make to members.

  • “Dividends” from co-ops or tax-exempt organizations.

3. You held the underlying security for long enough. The definition of "enough" gets a little tricky, but typically, if you owned the security for more than 60 days during the 121-day period that began 60 days before the ex-dividend date — that is, the day by when you must own the stock to receive the dividend — the dividend is usually qualified. (Preferred stock has special rules.)

Here's an example. If your Ford shares paid a dividend Sept. 1 and the ex-dividend date was July 20, you would need to have owned your shares for at least 61 days between May 21 and Sept. 19. And when you count the days, include the day you sold the shares, but not the day you bought them.

If you don’t hold the shares long enough, the IRS might deem them nonqualified, and you’ll pay tax at the higher, nonqualified rate. Again, remember that there are many exceptions — see IRS Publication 550 for the details.

» MORE: See our list of the best online brokerages for dividend investing

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How Are Dividends Taxed? Dividend Tax Rates for 2023-2024 - NerdWallet (7)

Dividend tax rate 2023

These are the rates that apply to qualified dividends, based on taxable income, for the 2023 tax year (taxes due April 2024).

Tax filing status

0% tax rate

15% tax rate

20% tax rate

Single

$0 to $44,625.

$44,626 to $492,300.

$492,301 or more.

Married, filing jointly

$0 to $89,250.

$89,251 to $553,850.

$553,851 or more.

Married, filing separately

$0 to $44,625.

$44,626 to $276,900.

$276,901 or more.

Head of household

$0 to $59,750.

$59,751 to $523,050.

$523,051 or more.

Short-term capital gains are taxed as ordinary income according to federal income tax brackets.

Dividend tax rate 2024

These are the rates that apply to qualified dividends, based on taxable income, for the 2024 tax year (taxes due in April 2025).

Fling status

0%

15%

20%

Single

$0 to $47,025

$47,026 to $518,900

$518,901 or more

Married filing jointly

$0 to $94,050

$94,051 to $583,750

$583,751 or more

Married filing separately

$0 to $47,025

$47,026 to $291,850

$291,851 or more

Head of household

$0 to $63,000

$63,001 to $551,350

$551,351 or more

Short-term capital gains are taxed as ordinary income according to federal income tax brackets.

How to report dividend income on your taxes

  • After the end of the year, you’ll receive a Form 1099-DIV — or sometimes a Schedule K-1 — from your broker or any entity that sent you at least $10 in dividends and other distributions. The 1099-DIV indicates what you were paid and whether the dividends were qualified or nonqualified.

  • You use this information to fill out your tax return. You might also need to fill out a Schedule B if you received more than $1,500 in dividends for the year.

  • Even if you didn’t receive a dividend in cash — let’s say you automatically reinvested yours to buy more shares of the underlying stock, such as in a dividend reinvestment plan (DRIP) — you still need to report it.

  • You also need to report dividends from investments you sold during the year.

» MORE: Learn more about different types of Form 1099

How to control your dividend tax bill

Watch the calendar

You could pay a lower dividend tax rate by holding your investments for the 61-day minimum. Just be sure that doing so aligns with your investment objectives.

Set cash aside

Your employer withholds taxes from your paycheck and sends them to the IRS on your behalf — but there’s usually nobody doing the same with your dividends. You may need to pay estimated taxes throughout the year. Your tax software or a qualified tax pro, such as a tax preparer or a local CPA, can help calculate how much that is and when to pay.

» Dive deeper: See our picks for the best tax software

Consider using a retirement account

  • Owning dividend-paying investments inside a retirement account could shelter dividends from taxes or defer taxes on them. Think ahead, though. Do you need the income now?

  • Also, the type of retirement account matters when it comes to determining the tax bill. When you eventually withdraw money from a traditional IRA, for example, it may be taxed at your ordinary income tax rate rather than at those lower qualified dividend tax rates.

» Ready to browse? Our picks for this year's best IRA accounts

Frequently asked questions

Are dividend reinvestment plans (DRIPs) taxed?

Yes. DRIPS are still considered income, even though you did not receive that income in cash. If you have a DRIP that allows you to purchase shares at a discount using reinvested dividends, you must report the fair market value of those shares as income on your tax return.

Are mutual fund dividends taxed?

Yes, mutual funds that pay dividends generate the same tax liability for shareholders as stocks that pay dividends.

When it comes to mutual funds, one thing to be aware of is the difference between dividends and capital gains distributions. The latter are payments of profits to mutual fund shareholders. They're taxed slightly differently, but they'll both be shown on your Form 1099-DIV.

How Are Dividends Taxed? Dividend Tax Rates for 2023-2024 - NerdWallet (2024)

FAQs

How Are Dividends Taxed? Dividend Tax Rates for 2023-2024 - NerdWallet? ›

Qualified dividends are taxed at 0%, 15% or 20% depending on taxable income and filing status. Nonqualified dividends are taxed as income at rates up to 37%. IRS form 1099-DIV helps taxpayers to accurately report dividend income.

How are dividends taxed in 2023? ›

2023 Dividend tax rates
2023 Qualified Dividend Tax RateFor Single TaxpayersFor Married Couples Filing Jointly
0%Up to $44,625Up to $89,250
15%$44,625-$492,300$89,250-$553,850
20%More than $492,300More than $553,850
May 1, 2024

How will dividends be taxed in 2024? ›

For 2024, qualified dividends may be taxed at 0% if your taxable income falls below: $47,025 for those filing single or married filing separately. $63,000 for head of household filers. $94,050 for married filing jointly or qualifying widow(er) filing status.

How are dividends taxed? ›

Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.

What is the tax rate on eligible dividends 2023? ›

Gross-up rate for eligible dividends is 38%, and for non-eligible dividends is 15%.

How to calculate dividend tax? ›

Tax on dividends is calculated pretty much the same way as tax on any other income. The biggest difference is the tax rates - instead of the usual 20%, 40%, 45% (depending on your tax band), you'll be taxed at 8.75%, 33.75%, and 39.35%.

How do I avoid paying tax on dividends? ›

Options include owning dividend-paying stocks in a tax-advantaged retirement account or 529 plan. You can also avoid paying capital gains tax altogether on certain dividend-paying stocks if your income is low enough. A financial advisor can help you employ dividend investing in your portfolio.

Are reinvested dividends taxed twice? ›

Dividends are taxable regardless of whether you take them in cash or reinvest them in the mutual fund that pays them out. You incur the tax liability in the year in which the dividends are reinvested.

What are the tax rates for 2024? ›

Head of household
Tax rateTaxable income bracketTaxes owed
10%$0 to $23,200.10% of taxable income.
12%$23,201 to $94,300.$2,320 plus 12% of the amount over $23,200.
22%$94,301 to $201,050.$10,852 plus 22% of the amount over $94,300.
24%$201,051 to $383,900.$34,337 plus 24% of the amount over $201,050.
3 more rows
Apr 30, 2024

Do dividends count as income for social security? ›

Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes.

How is income tax calculated on dividends? ›

A 10% TDS is payable on the dividend income amount over INR 5,000 during the fiscal year. If the PAN is not submitted, the TDS rate would be 20%. If an individual's income, which includes the dividend income is less than INR 2.5 lakh, it is not taxable.

How are dividends paid and taxed? ›

Dividends paid by a company to a shareholder out of after-tax profits are taxable for that shareholder. If the company has already paid tax, and 'franking credits' on the dividend are available, the dividends may be franked.

How much dividend income to file taxes? ›

If you had over $1,500 of ordinary dividends or you received ordinary dividends in your name that actually belong to someone else, you must file Schedule B (Form 1040), Interest and Ordinary Dividends. Please refer to the Instructions for Form 1040-NR for specific reporting information when filing Form 1040-NR.

What is the tax rate for dividends in 2023? ›

Qualified-Dividend Tax Treatment
Dividend Tax Rates for Tax Year 2023
Tax RateSingleMarried, Filing Jointly
0%$0 - $44,625$0 to $89,250
15%$44,626 - $492,300$89,251 to $553,850
20%$492,301 or more$553,851 or more

What are the taxable brackets for 2023? ›

2023 tax brackets and federal income tax rates
Tax RateSingle filersMarried filing separately
12%$11,001 to $44,725$11,001 to $44,725
22%$44,726 to $95,375$44,726 to $95,375
24%$95,376 to $182,100$95,376 to $182,100
32%$182,101 to $231,250$182,101 to $231,250
3 more rows

What is the standard deduction for 2024? ›

For 2024, the standard deduction amount has been increased for all filers, and the amounts are as follows. Single or Married Filing Separately—$14,600. Married Filing Jointly or Qualifying Surviving Spouse—$29,200. Head of Household—$21,900.

Are dividends taxed if reinvested? ›

The IRS considers any dividends you receive as taxable income, whether you reinvest them or not. When you reinvest dividends, for tax purposes you are essentially receiving the dividend and then using it to purchase more shares.

What are the taxable income rates for 2023? ›

2023 tax brackets and federal income tax rates
Tax RateSingle filersMarried filing jointly or qualifying surviving spouse
24%$95,376 to $182,100$190,751 to $364,200
32%$182,101 to $231,250$364,201 to $462,500
35%$231,251 to $578,125$462,501 to $693,750
37%$578,126 or more$693,751 or more
3 more rows

What are the tax brackets for 2023 stock? ›

Long-term capital gains tax rates 2023
Capital gains tax rateSingle (taxable income)Married filing jointly (taxable income)
0%Up to $44,625Up to $89,250
15%$44,626 to $492,300$89,251 to $553,850
20%Over $492,300Over $553,850
Dec 21, 2023

What is the tax rate on interest income in 2023? ›

And if you're a high-income earner who receives interest, you may also be subject to an additional tax, the net investment income tax, which is a 3.8% tax on interest, dividends, capital gains, and more. These are the 2023 income thresholds for net investment income tax: Single-filers or head of household: $200,000.

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