Are dividends taxable?

The short answer, and what it depends on

A dividend is a payment a corporation or mutual fund makes to its owners, and Publication 550 treats nearly all of them as income in the year you receive them. The useful question is not whether a dividend is taxable but which kind it is, because the three common kinds are taxed three different ways. Ordinary dividends go on Form 1040 at your regular bracket rates. Qualified dividends are ordinary dividends that meet extra tests and are taxed at the same maximum rates as long-term capital gains. Capital gain distributions from a mutual fund or REIT are reported as long-term gains no matter how long you owned the fund shares.

The publication also describes what is not a taxable dividend even though it may be called one. A distribution that is not paid out of earnings and profits is a nondividend distribution, shown in box 3 of Form 1099-DIV. It reduces your basis in the stock and is not taxed until your basis reaches zero. The publication’s example: you bought stock in 2012 for $100 and received an $80 nondividend distribution in 2015, leaving basis of $20. A $30 distribution in 2025 uses the remaining $20 of basis tax free, and the other $10 is a long-term capital gain.

Ordinary dividends and the qualified dividend tests

You can assume a dividend on common or preferred stock is ordinary unless the payer tells you otherwise. Box 1a of Form 1099-DIV shows total ordinary dividends, and box 1b shows the part that is qualified. Box 1b is already included in box 1a, so you never add the two. To be qualified, a dividend must pass three checks listed in the publication: it was paid by a U.S. corporation or a qualified foreign corporation, it is not one of the types the publication excludes, and you met the holding period.

The excluded types include capital gain distributions, dividends that are really interest on deposits at credit unions and savings institutions, dividends from tax-exempt organizations and farmers’ cooperatives, dividends on employer securities held by an employee stock ownership plan, dividends to the extent you must make related payments on a short sale, and payments in lieu of dividends when you know or have reason to know they are not qualified. A box 1b figure on your form does not override these exclusions.

The holding period, with the publication’s examples

You must have held the stock more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. You count the day you sold the shares but not the day you bought them. For preferred stock whose dividends are due to periods totaling more than 366 days, the test is more than 90 days in a 181-day period that begins 90 days before the ex-dividend date. Days do not count when your risk of loss was reduced, for example because you held an option to sell, made a short sale of substantially identical stock, or granted a call on it.

Publication 550’s Example 1 buys 5,000 shares on July 7, 2025, collects a 10-cent dividend with a July 14 ex-dividend date, and sells on August 8. That is only a few weeks inside the window, so the $500 is not qualified even though box 1b may show it. In Example 2 the buyer purchases on July 11 and sells on September 12, holding 63 days, and the full $500 is qualified. One detail worth knowing: the publication prints the window for these examples as May 13 to September 11, but counting 60 days back from July 14 gives May 15 and a window ending September 12. The tool above uses the rule as written, and both examples reach the same conclusion either way. Enter the dates from your own trade confirmation to test a real position.

2025 rates for qualified dividends

Qualified dividends use the maximum capital gain rates. Publication 550’s Table 4-4 gives the 2025 taxable-income ranges for the 0%, 15% and 20% rates on “other gain,” which is the row that applies to qualified dividends:

For example, a single filer with $58,000 of other taxable income and $2,000 of qualified dividends has taxable income of $60,000. The dividends sit entirely above the $48,350 line, so all $2,000 is taxed at 15%, or $300. If the same $2,000 were ordinary dividends, it would instead be added to income and taxed at the filer’s ordinary bracket rate. The publication tells you to compute the real figure with the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, which our qualified dividends worksheet calculator follows. These tiers do not include the separate 3.8% net investment income tax, which you can estimate with the NIIT calculator.

Distributions that look like dividends but are treated differently

• Reinvested dividends are still income. If a dividend reinvestment plan buys shares at fair market value, you report the dividend. If it sells you shares below market, you report the fair market value of the extra stock on the payment date.
• Money market funds pay dividends, not interest, so the amounts go with dividend income. Bank money market accounts pay interest.
• Exempt-interest dividends from a mutual fund (box 12) are not taxable but must still be shown on your return.
• Insurance dividends that the insurer keeps to pay premiums are not taxable, and veterans’ insurance dividends are not taxable.
• Late declared dividends: a fund or REIT dividend declared in October, November or December and paid in January is treated as received on December 31.

Where to report

Report total ordinary dividends on Form 1040 or 1040-SR, line 3b, and qualified dividends on line 3a. If you received $10 or more in dividends and other distributions from a company, you should receive a Form 1099-DIV, but you owe tax on dividends even without the form. You also complete Schedule B, Part I if your taxable interest and ordinary dividends together were over $1,500. Keep the holding-period dates with your records, because the payer cannot always see them.

Limits of this page

This page covers federal tax on individual investors. It does not cover state tax, dividends from partnerships or trusts, or the NIIT. For a stock you have not yet sold, estimate the yield with the dividend yield calculator.

Sources

• IRS Publication 550, Investment Income and Expenses (2025): Dividends and Other Distributions, Ordinary Dividends, Qualified Dividends and Holding period, Nondividend Distributions, Dividends Used To Buy More Stock, Other Distributions and How To Report Dividend Income in chapter 1; Table 4-4 (maximum capital gain rates) in chapter 4. Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 550 (2025), for use in preparing 2025 returns. Dollar limits and thresholds quoted on this page are for 2025 and can change; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.