Quick Answer: Qualified dividends are taxed at 0%, 15%, or 20% based on your taxable income (According to IRS Topic 404). Non-qualified dividends are taxed at regular income rates (10-37%). Understanding this distinction helps you plan personal income alongside business earnings from your restaurant, retail, or service business.
What's the Difference Between Qualified and Non-Qualified Dividends?
Here's what really matters for your tax bill: whether your dividends qualify for lower rates or get taxed as ordinary income.
Qualified dividends are ordinary dividends that meet specific IRS requirements to receive preferential tax treatment. According to IRS Publication 550, to qualify, dividends must come from a U.S. corporation or qualified foreign corporation, and you must hold the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.
Most dividends from U.S. blue-chip stocks qualify for these lower rates. However, dividends from Real Estate Investment Trusts (REITs) and money market funds typically don't qualify.
Here's a real example: You're a restaurant owner in the 32% tax bracket who's built dividend-paying investments as backup income. If you receive $10,000 in qualified dividends, you'd pay $1,500 in federal tax (15% rate) versus $3,200 for non-qualified dividends. That's a $1,700 difference. Your accountant needs both your business income and investment income to calculate your total tax picture and quarterly estimated payments.
How Do I Report and Pay Taxes on Dividends?
If you've received a Form 1099-DIV and aren't sure what to do with it, here's how dividend reporting actually works.
You must report all dividend income on your tax return, regardless of the amount. Brokerages issue Form 1099-DIV by January 31 for dividends totaling $10 or more. Box 1a shows total ordinary dividends; Box 1b shows the qualified portion.
Report qualified dividends on Form 1040, line 3a, and total ordinary dividends on line 3b. If your total ordinary dividends exceed $1,500, you'll also need to complete Schedule B.
For 2025, the tax brackets work like this: Single filers pay 0% on qualified dividends up to $48,350 in taxable income, 15% from $48,351 to $533,400, and 20% above that threshold. Married couples filing jointly see the 0% rate up to $96,700 and 15% up to $600,050. High earners should also note that the 3.8% Net Investment Income Tax applies when Modified Adjusted Gross Income exceeds $200,000 (single) or $250,000 (married filing jointly).
What About Dividend Tax Treatment in Retirement Accounts?
If you're investing through an IRA or 401(k), the rules change completely—and it's worth knowing how before you decide where to park your money.
In traditional IRAs and 401(k)s, dividends grow tax-deferred, but withdrawals are taxed as ordinary income. The qualified versus non-qualified distinction doesn't apply inside these accounts. All withdrawals get taxed at your regular income tax rate when you take distributions.
In Roth IRAs, qualified distributions—including dividend earnings—are completely tax-free. This makes Roth accounts powerful tools for long-term investors, especially if you expect higher tax brackets during retirement than while building your business.
When you're juggling business income, personal investments, and retirement planning, understanding how each income stream gets taxed helps you make smarter decisions about where to invest and when to take distributions.
How Does Homebase Help with Tax Season Preparation?
Tax season means reconciling W-2s for your hourly teams, 1099s for contractors, and your business income while understanding how everything affects your total tax picture. While dividend taxation affects your personal income, Homebase helps you manage the business side: accurate timesheets and automated payroll ensure your business tax reporting is clean and compliant.
When your accountant reviews your complete financial picture, having accurate business income documentation makes tax planning easier.
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Sources and Methodology
At Homebase, we rely on up-to-date, authoritative sources to ensure every Question Center article provides accurate guidance for small business owners. We start with primary federal materials from the IRS and Department of Labor, verify details using official agency publications, and use reputable industry resources only to supplement (never replace) official law.
For this piece, we referenced IRS Publication 550 (Investment Income and Expenses), IRS Topic No. 404 (Dividends), IRS Revenue Procedure 2024-40 for 2025 tax thresholds, Instructions for Form 1099-DIV, Instructions for Form 1040 and Schedule B, and IRS guidance on the Net Investment Income Tax.