What is the dividend tax rate for 2023?
Investing in companies that pay dividends can be a tax-efficient way to grow your savings. Take a look at the 2023 tax rate for qualified and non-qualified dividends in 2023.
Typically paid quarterly, dividends are a company’s way of rewarding its shareholders. They can be an efficient way to grow your savings, especially in retirement. Qualified dividends are also subject to a lower rate of tax than ordinary income.
But what are dividends? And how can they help you boost your savings or your retirement account? Look at the 2023 dividend tax rates for both qualified and non-qualified dividends.
What are dividends?
Dividends are shares of the profits made by a company or mutual fund, which are paid to investors in that entity as a form of reward. These are typically paid out to shareholders in cash every quarter. Receiving dividends as stock, stock rights, or property is also possible.
Dividends can also be paid as stock into a retirement account, which means they’re untaxed. Because of this, dividends are often popular with retirees as they can offer a regular income stream.
It’s worth remembering that dividends are not a guaranteed source of income, however: even large, established companies may stop paying dividends if they’re no longer making a profit.
Qualified vs. non-qualified dividends
Dividends are classed as either qualified or non-qualified. But what’s the difference?
The main one is the rate of tax you pay on them.
Non-qualified dividends are treated as income and subject to a standard income tax rate.
Qualified dividends are taxed as capital gains, so you’ll be taxed less.
Qualified dividends
Dividends are classed as qualified If you’ve held stock in a US corporation (or a qualifying foreign one) for a stipulated holding period.
Companies use ex-dividend dates to decide whether an investor has held stocks long enough for the next dividend payment. The IRS considers a dividend qualified if an investor has held stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.
Qualified dividends are taxed as capital gains, so the maximum tax you’ll pay is 20 percent, and the minimum is 0 percent.
Non-qualified dividends
Often called ordinary dividends, non-qualified dividends include many other types of dividends, including real estate investment trusts (REITs) and employee stock options. They’re taxed as normal income, so the maximum tax rate you’ll pay is 37 percent, and the minimum is 10 percent.
The difference between qualified and non-qualified dividends might sound complicated, but a financial advisor can tell you which ones you receive and what information you need to enter when you file your tax return.
Dividend tax rates for 2023
Even if you reinvest your dividends in the same company or fund that paid them, you’ll still pay taxes on them. The rate of tax depends on the type of dividends you receive.
Here are the 2023 tax rates for qualified and non-qualified dividends, according to an individual’s marital status:
Qualified dividends
| Single | Head of household | Married, filing jointly | Married, filing separately | Tax rate |
|---|---|---|---|---|
| Single | Head of household | Married, filing jointly | Married, filing separately | Tax rate |
| Up to $44,625 | Up to $59,750 | Up to $89,250 | Up to $44,625 | 0 percent |
| $44,626 – $492,300 | $59,751 – $523,050 | $89,251 – $553,850 | $44,626 – $276,900 | 15 percent |
| $492,301+ | $523,051+ | $553,850+ | $276,901+ | 20 percent |
Non-qualified dividends
| Single | Head of household | Married, filing jointly | Married, filing separately | Tax rate |
|---|---|---|---|---|
| Single | Head of household | Married, filing jointly | Married, filing separately | Tax rate |
| Up to $11,000 | Up to $15,700 | Up to $22,000 | Up to $11,000 | 10 percent |
| $11,001 – $44,725 | $15,701 – $59,850 | $22,001 – $89,450 | $11,001 – $44,725 | 12 percent |
| $44,726 – $95,375 | $59,851 – $95,350 | $89,451 – $190,750 | $44,726 – $95,375 | 22 percent |
| $95,376 – $182,100 | $95,351 – $182,100 | $190,751 – $364,200 | $95,376 – $182,100 | 24 percent |
| $182,101 – $231,250 | $182,101 – $231,250 | $364,201 – $462,500 | $182,101 – $231,250 | 32 percent |
| $231,251 – $578,125 | $231,251 – $578,100 | $462,501 – $693,750 | $231,251 – $346,875 | 35 percent |
| $578,126+ | $578,101+ | $693,751+ | $346,876+ | 37 percent |
As these tables show, you’ll pay considerably less tax on qualified dividends than non-qualified ones.
How to report dividends on your tax return
Your stockbroker or the institutions administering your investments will send you a 1099-DIV, usually by early February. The 1099-DIV is a type of IRS tax form that reports your dividends for the financial year.
You should enter the amount on this form into your Form 1040 on lines 3a (for qualified dividends) and 3b (for non-qualified ones).
If you’ve received less than $10 in dividends for the year, you may not receive a 1099-DIV, but you should still report the amount on your 1040.
Non-qualified dividends exceeding $1,500 should be reported on Schedule B, which is then attached to your 1040.
If you receive dividends from an LLC or S corporation or a trust, estate, or partnership, you’ll get a Schedule K-1 as well as a 1099-DIV.
The K-1 is a tax document used to report earnings, losses, and dividends for an entity’s partners or shareholders. It also reports distributions from trusts and estates. You or your tax preparer can transfer the information on it into your tax return.
Get more advice on investments and tax planning
If the business of dividend tax sounds complex, it needn’t be. An experienced financial advisor can help you distinguish between qualified and non-qualified dividends and guide you on what to do with your dividend earnings.
They can also give advice on investing in companies and funds that pay a dividend and tips for effective tax planning.
But how to find the right financial advisor for you? Unbiased can match you with a regulated, independent financial advisor in your area.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.