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Home » Dividend Income
Dividend income refers to the earnings received when a corporation shares its profits with the shareholders. These payments are typically made in cash but can also be in the form of a stock or other property. Companies usually pay dividends to reward shareholders and share a portion of their profits.
Dividends can come from various sources including partnerships, estates, trusts, S corporations, or associations taxable as corporations. In some cases, a shareholder may receive a dividend even if no direct cash payment is made. This occurs when a corporation pays a shareholder’s debt, provides services, or allows the use of its property without compensation. Shareholders may also receive extra shares (stock distributions) or rights to buy more shares (stock rights), which can also qualify as dividends.
For tax purposes, dividend income is classified into two types: qualified dividends and non-qualified dividends.
Qualified dividends are taxed at lower capital gains tax rates rather than ordinary income tax rates, making them more tax efficient.
To qualify, dividends must meet specific IRS criteria, including:
Non-qualified dividends do not meet the IRS requirements for qualified dividends and are therefore taxed at ordinary income tax rates.
These dividends may include:
Taxed at 0%, 15%, or 20%, depending on the taxpayer’s taxable income. These rates are aligned with long-term capital gains tax rates.
0% – If your taxable income is up to $44,625 (Single) or $89,250 (Married Filing Jointly) for 2025.
15%- If taxable income is between $44,626 and $492,300 (Single) or $89,251 and $553,850 (Married Filing Jointly).
20%- If your taxable income exceeds $492,300 (Single) or $553,850 (Married Filing Jointly).
Taxed at the ordinary income tax rates, which range from 10% to 37%, based on the taxpayer’s tax bracket.