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Taxes from A to Z: Q Is For Qualified Dividends

March 21, 2012 · 0 comments

Q is for Qualified Dividends.

Qualified dividends sound fancy but they’re really just ordinary dividends that, if they meet certain criteria, are taxed at lower tax rates.

In order to be taxed at the qualified dividend rate, the dividend must be paid between January 1, 2003 and December 31, 2012, by a U.S. corporation, by a corporation incorporated in a U.S. possession, by a foreign corporation located in a country that is eligible for benefits under a U.S. tax treaty that meets certain criteria, or on a foreign corporation’s stock that can be readily traded on an established U.S. stock market.

To reap the benefits of an ordinary dividend, you, as the taxpayer, must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date (try saying that really, really fast several times in a row). That’s kind of complicated but you needn’t worry: most qualified dividends are clearly noted on the form 1099-DIV or consolidated statement.

For 2011, taxpayers who would normally have paid a 10% or 15% ordinary income tax rate will pay 0% on qualified dividends. All other taxpayers pay a mere 15%.

Don’t get too excited, though: tax breaks for qualified dividends are slated to disappear at the end of 2012. That means that taxpayers will pay tax at their ordinary income tax rates on qualified dividends. As of this writing, those rates are 15%, 28%, 31%, 36% and 39.6%.

For more in the series, see:

Taxes from A to Z: A is for Alimony
Taxes from A to Z: B is for Barter
Taxes from A to Z: C is for Capital Losses
Taxes from A to Z: D is for Deductible Taxes
Taxes from A to Z: E is for Educator’s Expenses
Taxes from A to Z: F is for FSA
Taxes from A to Z: G is for Gift Expenses
Taxes from A to Z: H is for Home Improvements
Taxes from A to Z: I is for Injured Spouse
Taxes from A to Z: J is for Job Search Expenses
Taxes from A to Z: K is for Kiddie Tax
Taxes from A to Z: L is for Levy
Taxes from A to Z: M is for Making Work Pay Credit
Taxes from A to Z: N is for Noncitizen Spouses
Taxes from A to Z: O is for Offer in Compromise
Taxes from A to Z: P is for Penalty on Estimated Tax

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