Ordinary vs. Qualified Dividends – Did You Know?

If you own stock, your dividend income may be classified as “Qualified Dividends” on the Form 1099-DIV you receive from the company. While ordinary dividends are taxed at your usual income tax rate, qualified dividends are taxed at the long-term capital gains tax rate, which is significantly lower in most cases. In fact, for lower-income taxpayers, the 2018 tax rate on qualified dividend income is 0%.

Historically, the tax rate on your qualified dividend income was directly linked to (but usually less than) your income tax rate. However, the 2017 Tax Cuts and Jobs Act (TCJA) created designated income brackets for the three qualified dividends tax rates (0%, 15%, and 20%). These brackets are independent of ordinary income tax brackets and will be adjusted for inflation annually. Therefore, the tax rate on your qualified dividends could change even if your income tax rate does not, or vice versa