To see if dividends are qualified, check Box 1b of the IRS Form 1099-DIV sent by your broker, which specifically lists the amount of qualified dividends, while Box 1a shows total ordinary dividends. For a dividend to be qualified, you must have held the stock for more than 60 days during the 121-day period surrounding the ex-dividend date.
To know if dividends are qualified, check Form 1099-DIV, specifically Box 1b, as the payer identifies them for lower capital gains tax rates; otherwise, verify the dividend comes from a domestic or qualified foreign corp, and you met the IRS's holding period (usually 61 days) and "unhedged" rules for the stock or fund.
Qualified and non-qualified dividends differ primarily in how they are taxed. Qualified dividends meet specific Internal Revenue Service criteria and are taxed at lower capital gains rates, while non-qualified dividends are subject to ordinary income tax rates.
A corporation designates a dividend as an eligible dividend by notifying, in writing, each person to whom any dividend is paid that the dividend is an eligible dividend so that the recipient individual can claim the appropriate gross-up and DTC.
Calculating the amount of qualified dividends
Once you determine the number of shares that meet the holding period requirement, find the portion per share of any qualified dividends. For each qualified dividend, multiply the two amounts to determine the amount of the actual qualified dividend.
Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are included in ordinary income, qualified dividends are those dividends that qualify to be taxed at lower capital gain rates.
To avoid taxes on dividends, hold them in a Roth IRA for tax-free growth and withdrawals, use a Traditional IRA/401(k) to defer taxes until retirement (often a lower bracket), invest in tax-advantaged education accounts, or if your income is low enough, qualify for the zero percent long-term capital gains rate on qualified dividends in a standard brokerage account. Some dividends, like a return of capital, aren't taxed, and you can also manage withholding by adjusting your W-4 to avoid penalties, notes the IRS.
To determine whether you should get a dividend, you need to look at two important dates. They are the "record date" or "date of record" and the "ex-dividend date" or "ex-date." When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend.
The amount of tax-free dividend income depends on your filing status and income level, with the 0% tax bracket applying to qualified dividends for single filers with taxable income up to $48,350 (2025), married couples up to $96,700, and heads of household up to $64,750. Beyond these income thresholds, dividends are taxed at 15% or 20%, but dividends in a Roth IRA are completely tax-free if withdrawals are qualified.
You can avoid paying taxes on qualified dividends by holding dividend stocks in tax-advantaged accounts (like Roth IRAs/401(k)s), staying in the 0% capital gains tax bracket through strategic deductions or lower income, or by investing in tax-exempt securities like municipal bonds, but the main strategy involves using retirement accounts or meeting income thresholds for 0% capital gains tax.
At the most basic level, you only need to own a stock by the ex-dividend date (or deadline) in order to get the dividend. And you can sell the stock a day or two after that, once everything settles. So in theory, you only need to own the stock for a couple of days to get the dividend.
A dividend is considered qualified if the shareholder has held a stock for more than 60 days in the 121-day period that began 60 days before the ex-dividend date. 1 The ex-dividend date is one market day before the dividend's record date.
The main difference between qualified and ordinary dividends is tax treatment: qualified dividends are taxed at lower long-term capital gains rates, while ordinary dividends are taxed at higher ordinary income rates. To be qualified, dividends must meet specific IRS criteria, primarily a holding period requirement of owning the stock for over 60 days during a 121-day window around the ex-dividend date, and be from a U.S. or qualifying foreign corporation. Ordinary dividends are the default, including payments from banks, REITs, and co-ops, and don't meet these rules.
View dividends for individual holdings
Dividend stripping (also known as dividend arbitrage) is the practice of buying shares a short period before a dividend is declared, called cum-dividend, and then selling them when they go ex-dividend, when the previous owner is entitled to the dividend.
The amount of tax-free dividend income depends on your filing status and income level, with the 0% tax bracket applying to qualified dividends for single filers with taxable income up to $48,350 (2025), married couples up to $96,700, and heads of household up to $64,750. Beyond these income thresholds, dividends are taxed at 15% or 20%, but dividends in a Roth IRA are completely tax-free if withdrawals are qualified.
TDS on dividends is applicable when total dividend income during the financial year exceeds ₹5,000. TDS is deducted on dividend income at 10%, but if PAN is not provided to the paying institution, the TDS rate goes up to 20%. As we know, the tax exemption limit under the Income Tax Act begins from Rs 2.5 lakhs.
Dividend stripping, a form of tax avoidance, occurs when what should have been a taxable dividend is converted into a capital sum in the hands of a shareholder. This typically happens by way of a sale of shares to a related party and the ultimate economic ownership or control of the company remaining unchanged.
Capital Dividends
Eligible and non-eligible dividends are taxable. Capital dividends on the other hand, are 100% tax-free when properly declared and the shareholder can receive these amount with no personal tax liability. CCPCs are the only corporations that have the advantage of claiming capital dividends.