What is the difference between qualified and ordinary dividends for taxes in 2025?

Dividends are taxed at different rates depending on whether they are classified as qualified or ordinary (non-qualified).

Qualified dividends are taxed at the preferential long-term capital gains rates (0%, 15%, or 20% depending on your income). To qualify, the dividend must be paid by a U.S. corporation or qualified foreign corporation, and you must have held the stock for more than 60 days during the 121-day period surrounding the ex-dividend date (90 days for preferred stock).

Ordinary (non-qualified) dividends are taxed at your regular income tax rate (10-37%). Examples include dividends from REITs (Real Estate Investment Trusts), money market funds, short-term holdings, dividends on employee stock options, and dividends from tax-exempt organizations.

Where to find this information: Your broker reports both types on Form 1099-DIV. Box 1a shows total ordinary dividends, and Box 1b shows the qualified portion (which is a subset of Box 1a). On your tax return, total dividends go on Form 1040 line 3a, and qualified dividends on line 3b. The Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040 instructions) calculates your tax at the preferential rate.

REIT dividends exception: While most REIT dividends are ordinary, they may qualify for the 20% QBI deduction under Section 199A, effectively reducing the tax rate. A REIT paying ordinary dividends to someone in the 37% bracket would have an effective rate of 29.6% after the QBI deduction, which is closer to the qualified dividend rate.

Tax planning: Hold dividend-paying stocks in tax-advantaged accounts (IRA, 401k) if they pay ordinary dividends, and in taxable accounts if they pay qualified dividends. This strategy maximizes the benefit of preferential rates.