Are dividends taxed?

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Accepted Answer

Yes. In the US, qualified dividends are taxed at 0%, 15%, or 20% depending on your income bracket. Ordinary (non-qualified) dividends are taxed at your regular income tax rate. REITs, BDCs, MLPs, and most foreign dividends are non-qualified. Dividends inside a Roth IRA or 401(k) are tax-free or tax-deferred respectively. US dividend taxation depends on two things: whether the dividend is qualified, and the account it is paid into. Qualified dividends are paid by US corporations (or qualifying foreign companies) on shares held for more than 60 days during the 121-day period around the ex-dividend date. They get long-term capital gains tax treatment: 0%, 15%, or 20% federal depending on income, plus the 3.8% Net Investment Income Tax (NIIT) for high earners. Ordinary dividends — paid by REITs, BDCs, MLPs (which actually issue K-1s), most preferred stocks, and many foreign companies — are taxed at your marginal income tax rate, up to 37% federally. The 20% QBI deduction can offset some REIT dividends. Account location matters more than most investors realise. The same $10,000 in REIT dividends costs a 32%-bracket investor roughly $3,200 in tax inside a taxable brokerage, but zero inside a Roth IRA. Tax-aware investors place ordinary-dividend-heavy names in tax-advantaged accounts and qualified dividend payers in taxable accounts.