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.
How is dividend income taxed?
The dividend tax rates that you pay on ordinary dividends are the same as the regular federal income tax rates. The dividend tax rate you will pay on ordinary dividends is 22%. Qualified dividends, on the other hand, are taxed at the capital gains rates, which are lower.
Do qualified dividends count as ordinary income?
Qualified dividends are included in a taxpayer’s adjusted gross income. However, these are taxed at a lower rate than ordinary dividends.
What is the tax rate on dividends in 2019?
You can use the 2018-19 dividend tax calculator here. The dividend tax rates for the 2019-20 tax year remain at 7.5% (basic), 32.5% (higher) and 38.1% (additional).
What is the difference between ordinary dividends and qualified dividends?
The difference between qualified and ordinary dividends is quite substantial when the time comes to pay taxes. As the name implies, ordinary dividends are taxed as ordinary income, while qualified dividends are taxed at a lower rate. For more on dividend tax rates, check out this article.