Qualified Dividend

Qualified dividends, as defined by the United States Internal Revenue Code, are ordinary dividends that meet specific criteria to be taxed at the lower long-term capital gains tax rate rather than at higher tax rate for an individual’s ordinary income. From 2003 to 2007, qualified dividends were taxed at 15% or 5% depending on the individual’s ordinary income tax bracket, and from 2008 to 2010, the tax rate on qualified dividends was reduced to 0% for tax payers in the 10% and 15% ordinary income tax brackets.

In order to be taxed at the qualified dividend rate, the dividend must:

  • be paid between January 1, 2003 and December 31, 2010,
  • be paid 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 (e.g., an American Depositary Receipt or ADR), and
  • the stock paying the dividend must be held for at least 61 days during the 120-day period beginning 60 days before the the ex-dividend date and ending 59 days after the ex-dividend date.