When you buy a company’s stock, you own a small piece of that company. Sometimes companies share part of their profits with shareholders in the form of dividends. Dividends are usually taxed each year, but there are ways to help lower the taxes you pay on them.
How are dividends taxed?
Dividends are usually taxed in the year you receive them. For example, any dividends paid during 2026 would typically be reported on your 2026 tax return. This mainly applies to dividends earned in a regular taxable brokerage account.
Dividends in tax‑advantaged accounts, like many retirement plans, generally aren’t taxed as long as the money stays in the account. The tax rate you pay can vary based on the type of dividend and how long you’ve owned the stock. Dividends are generally grouped into 2 types: qualified and nonqualified.
What is a qualified dividend?
A qualified dividend is a dividend paid by a US company or by certain foreign companies that meet IRS rules, such as being covered by a US tax treaty or being traded on a US stock exchange.
To get the lower tax rate on qualified dividends, you generally need to hold the stock unhedged for more than 60 days within a 121-day window that starts 60 days before the ex-dividend date.
The ex-dividend date is the first day the stock trades without the upcoming dividend, so you would need to own the shares before that date to receive the payment.
In practical terms, selling a stock shortly after buying it may mean the dividend is taxed at a higher rate. This system tends to support longer-term investing rather than quick trades.
What is the tax rate on qualified dividends in 2026?
Qualified dividends are taxed at long-term capital gains rates, which are lower than ordinary income tax rates. The tax rates in 2026 are the following:
| Tax bracket | Single | Married filing separately | Head of household | Married filing jointly |
|---|---|---|---|---|
| 0% | $0 to $49,450 | $0 to $49,450 | $0 to $66,200 | $0 to $98,900 |
| 15% | $49,451 to $545,500 | $49,451 to $306,850 | $66,201 to $579,600 | $98,901 to $613,700 |
| 20% | Income over $545,500 | Income over $306,850 | Income over $579,600 | Income over $613,700 |
High-income taxpayers may also owe an extra tax called the net investment income tax on dividends and other investment income. This generally affects single filers with a modified adjusted gross income (MAGI) above $200,000 and married couples with a combined MAGI above $250,000.
What is a nonqualified dividend?
Nonqualified dividends, or ordinary dividends, are dividends that don’t meet the rules for the lower qualified dividend tax rate. They are usually taxed at your regular income tax rate, similar to wages or other ordinary income. Dividends from stock that wasn’t held long enough within the required 121-day window, hedged shares, or shares of nonqualifying companies are treated this way, which often affects people who trade more frequently.
Dividends from real estate investment trusts (REITs) are also generally taxed as ordinary income.
What is the tax rate on nonqualified dividends in 2026?
In 2026, the income tax rates and brackets for nonqualified dividends are the following:
| Tax rate | Single | Married filing separately | Head of household | Married filing jointly |
|---|---|---|---|---|
| 10% | $0 to $12,400 | $0 to $12,400 | $0 to $17,700 | $0 to $24,800 |
| 12% | $12,401 to $50,400 | $12,401 to $50,400 | $17,701 to $67,450 | $24,801 to $100,800 |
| 22% | $50,401 to $105,700 | $50,401 to $105,700 | $67,451 to $105,700 | $100,801 to $211,400 |
| 24% | $105,701 to $201,775 | $105,701 to $201,775 | $105,701 to $201,750 | $211,401 to $403,550 |
| 32% | $201,776 to $256,225 | $201,776 to $256,225 | $201,751 to $256,200 | $403,551 to $512,450 |
| 35% | $256,226 to $640,600 | $256,226 to $384,350 | $256,201 to $640,600 | $512,451 to $768,700 |
| 37% | $640,601 or more | $384,351 or more | $640,601 or more | $768,701 or more |
Are reinvested dividends taxable?
Yes, reinvested dividends are usually taxable in the year you receive them. Even if the money goes straight back into buying more shares, it’s still considered income for tax purposes. It may help to set aside part of your dividend income to prepare for the tax bill; otherwise, you might need to sell some shares later to cover what you owe.
How to report dividend income on your taxes
If you receive dividend income, reporting it for taxes is usually a straightforward process:
1. Get your 1099-DIV form
Your brokerage firm keeps track of your dividends and sends you a 1099-DIV form in late January or early February. This form shows how much you earned and separates qualified dividends from ordinary dividends. Some brokers combine this with other tax forms into one statement.
2. Review your total dividend income
Look at how much dividend income you received for the year. If your ordinary dividends plus taxable interest is more than $1,500, you may need to fill out Schedule B. If they’re below that amount, you usually just report the dividend income on your Form 1040.
3. Fill out Schedule B (if needed)
Schedule B is used to list your taxable interest (Part I) and ordinary dividends (Part II). Once completed, it gets attached to your tax return.
4. Report the amounts on your Form 1040
On Form 1040, you generally enter your total ordinary dividends on Line 3b and your qualified dividends on Line 3a. You then finish the rest of the form to figure out your total tax for the year.
Tips for lowering your taxes on dividends
If you receive dividends, there are a few approaches that may help reduce how much tax you owe:
1. Use tax-advantaged accounts for dividend stocks
Accounts like retirement plans can delay or even avoid taxes on dividends.
In traditional retirement accounts, taxes are generally paid later, when you take money out. In Roth accounts, 529 plans, and health savings accounts (HSAs), qualified withdrawals are usually tax-free, which may allow you to avoid taxes on the dividends altogether.
Because of this, some people choose to keep higher-dividend investments in these types of accounts instead of a regular taxable account.
2. Avoid short-term trading
Dividends can qualify for a lower tax rate if you hold the stock long enough. Selling too quickly may cause the dividend to be taxed at your regular income tax rate instead.
3. Reduce your total taxable income
There is a 0% tax bracket for qualified dividends if your taxable income stays below certain limits. If you’re close to that threshold, lowering your taxable income may help.
This might involve putting more money into tax-deductible retirement accounts, delaying income to the next year, or making charitable donations.
The same idea applies to people near the income level where the Net Investment Income Tax may apply—staying below the limit can help reduce taxes on dividends and other investment income.
The bottom line on dividends and taxes
Planning ahead and understanding how dividends are taxed can make it easier to manage your tax bill and keep more of your investment earnings. With a little bit of planning, you may be able to significantly lower your tax liability, giving you more money to save, spend, and invest.