Qualified Dividend

Qualified Dividend: A qualified dividend is a type of dividend that is eligible for a lower tax rate compared to ordinary income. To be considered a qualified dividend, the following criteria must be met:

1. The dividend must be paid by a U.S. corporation or a qualified foreign corporation.
2. The stock must be held for a specified period, typically more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

Qualified dividends are taxed at capital gains tax rates, which are generally lower than the ordinary income tax rates, providing a tax advantage to investors.

For example, if a taxpayer receives a $1,000 qualified dividend from a stock they held for the required duration, they may only pay a tax rate of 0%, 15%, or 20% on that income, depending on their overall taxable income, rather than their higher ordinary income tax rate.