Business, Legal & Accounting Glossary
A dividend that is taxed at a lower tax rate, because it follows a given set of specifications. The qualifications include that it must have been paid by an American company, or a company from another country on the qualified list, it must not be on the IRS’s list of non-qualifying dividends, and it has fulfilled the required holding period.
Under current U.S. tax law (2008), a qualified dividend is a dividend paid to shareholders of U.S. companies that qualifies for a reduced income tax rate.
If they do not qualify (see below), then the dividend is taxed at the taxpayer’s marginal tax rate, just like wages. Note that this is only an issue for dividends paid on shares within a taxable (non-tax-deferred) account.
In order to qualify for the lowered tax rate, you must meet the following three criteria:
There are certain other restrictions (a longer holding period for preferred stock, for instance), so be sure to read Chapter 1 of Publication 550.
The qualified tax rate is either 5% or 15%, depending on your tax bracket.
The total amount of dividends paid to you are shown in box 1a of the 1099-DIV your broker sends you each year. The amount of dividends paid that are qualified are shown in box 1b. However, the broker is not required to keep accurate track of which dividends are qualified or not if that is impractical for the broker (nice for the broker, huh?). It is up to you, dear taxpayer, to track the holding period and accurately report dividends received as either qualified or not when it comes time to file your income tax.
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This glossary post was last updated: 29th November, 2021 | 0 Views.