Dividend tax rates in 2025 and 2026

Are dividends taxed?

Yes, the IRS taxes dividend income, but not always. It depends on a few circumstances. Let's look at some exceptions. 

A common exception is dividends paid on stocks held in a retirement account such as a:

• Roth IRA
• Traditional IRA
• 401(k)

These dividends are not taxed since most income or realized capital gains earned by these types of accounts is tax-deferred or tax-free.

How to determine the owed tax on stock dividends 

Whether you owe taxes on a dividend depends on three factors:

1. Type of investment account: You may owe tax on dividends earned by stock held in a taxable brokerage account. You would not owe tax on dividends from stocks held in a retirement account, such as a Roth IRA or 401(k), or a college savings plan, such as a 529 plan or Coverdell ESA. There are exceptions to this tax immunity, though. Certain pass-through entities, such as master limited partnerships and publicly traded partnerships, can create tax obligations even for retirement accounts in some situations.
2. Type of dividend: The tax rate, if any, depends in part on the type of dividend. A qualified dividend is eligible for a lower tax rate. An ordinary or nonqualified dividend gets taxed at the investor's ordinary (sometimes called marginal) income tax rate. Finally, a nontaxable distribution, such as a return of capital, isn't taxable but can have future tax implications, as described in the prior section.
3. Your taxable income: Your tax bracket partly determines the tax rate applied to any dividends you earn, whether qualified or ordinary.

Here's a summary of when you won't pay tax on dividends:

• If your taxable earnings are in one of the three lowest federal income tax brackets and you receive qualified dividends.
• If the dividends are earned in a tax-deferred account such as one of those described above, even if your tax bracket is not one of the three lowest.
• If the dividend was a nontaxable event, such as a return of capital.

How much tax do you owe on dividends?

Dividends are taxed differently based on whether they are considered qualified or ordinary dividends under U.S. tax law. Qualified dividends get taxed at favorable rates, while nonqualified or ordinary dividends are taxed at your ordinary (marginal) income tax rate. For a dividend to be considered qualified for tax purposes, it must meet two main criteria:

1. The dividend is paid by a U.S. corporation domiciled in a U.S. state or territory or a foreign corporation listed on a major U.S. stock exchange. That might sound like it includes most stocks, but keep in mind that the payouts from certain types of investments aren't treated as qualified dividends. Real estate investment trusts (REITs) and certain pass-through entities, including master limited partnerships, pay out distributions that are typically taxed as ordinary income rather than at the preferential rates reserved for qualified dividends.
2. You owned the stock that is paying the dividend for more than 60 days within a specific 121-day holding period. The 121-day period begins 60 days before the ex-dividend date of the stock, which is exactly 60 days before the next dividend is distributed. The mandatory holding period prevents traders from earning tax-advantaged income on stocks that they hold for only a few days.

The following tables break down the current tax rates assessed on qualified dividends, depending on your taxable income and filing status in 2025:

2025 Dividend tax rates

2026 Dividend tax rates

High earners may owe the Net Investment Income Tax

In addition to the dividend taxes described above, dividend investors with modified adjusted gross incomes of more than $200,000 (for single taxpayers) or $250,000 (for married couples filing jointly) are also subject to the Net Investment Income Tax. The tax is assessed regardless of whether the dividends received are classified as qualified or ordinary.

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