Qualified Dividend

In the US federal tax system, dividends are divided into two types. Ordinary dividends are taxed at the same rates as wages and other ordinary income. Qualified dividends receive lower rates, which can make a large difference for investors in higher tax brackets.

To qualify, a dividend must generally be paid by a US company or a qualifying foreign company, and the investor must have held the shares for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

For example, an investor who buys shares just before the ex-dividend date and sells them a few days later would usually receive an ordinary dividend, taxed at the higher rate, because the holding period was not met.

Some payments do not qualify regardless of holding period, including most distributions from real estate investment trusts and interest-like payments from money market funds. Brokers report how much of an investor's dividends were qualified. Other countries have their own methods of taxing dividends, such as dividend allowances or credits for corporate tax already paid.