A dividend is considered eligible if you have held a stock for more than 60 days in the 121-day period that began 60 days before the non-dividend date. The ex-dividend date is a market day before the dividend registration date. Qualified dividends are listed on Form 1099-DIV in line 1b or column 1b. However, not all of the dividends declared in those lines may have met the holding period requirement.
These unqualified dividends, as well as other ordinary dividends, can be taxed at the ordinary income tax rate, which can reach 37%. Qualified dividends weren't part of the tax code until the Employment and Growth Tax Relief Reconciliation Act of 2003. Dividends can be taxed as ordinary dividends (also known as unqualified dividends) or as qualified dividends, and each of these classifications involves significant differences in tax rates. Qualified dividends are dividend payments that are taxed at the long-term capital gains rate, which is lower than ordinary income tax rates. Retirement and Tax Accounts Learn how contributions and withdrawals can affect your federal income taxes.
The qualifying dividend category (as opposed to an ordinary dividend) was created in the Employment and Growth Tax Relief Reconciliation Act of 2003; previously, there was no distinction and all dividends were tax-free or taxed together at the same rate. If you didn't buy or sell securities during the tax year, the potential qualifying dividends listed on your Form 1099-DIV should meet the holding period requirement and be eligible for a lower tax rate, unless you covered the securities.
