What's the Difference Between Qualified Dividends and Ordinary Dividends?

When you receive dividends from stocks or funds, they're classified as either qualified or ordinary, and the difference affects how much tax you pay on them. Ordinary dividends are taxed at your regular income tax rates, which can be as high as 37%. Qualified dividends are taxed at the lower long-term capital gains rates of 0%, 15%, or 20% depending on your income. To qualify for the lower rate, the dividends must be paid by a U.S. corporation or a qualifying foreign company, and you must have held the stock for more than 60 days during a specific window around the dividend payment date. Most dividends paid by major U.S. companies are qualified, and your brokerage will break them out on your year-end tax statement.