How to Calculate Qualified and Nonqualified Portions of a Dividend
Original post by Shula Asher Silberstein of Demand Media
If you own stock in a company, the company may pay you dividends on a quarterly basis. Receiving dividends can help your finances, but when it comes time to pay taxes, it is often confusing as you are taxed on any dividend payment you receive from a stock. Some dividends are "qualified," meaning you can pay lower taxes on them because you've held them for a long period of time, while others are unqualified and are taxed at a higher rate.
Check the date that you purchased the stock. If you purchased the stock within the previous 60 days, it may be a qualified dividend. Check the ex-dividend date -- the date by which you had to purchase the stock to qualify for dividends. If you purchased the stock no more than 60 days before or no more than 60 days after this date. and held it for 60 days, the dividend is qualified. Otherwise it is unqualified.
Report the entire amount of your dividends on your tax return. For example, if you had $300 of qualified dividends and $100 of non-qualified dividends, report investment income of $400. The companies you invest in must report your total dividends as ordinary dividends on your Form 1099-DIV.
Report your total dividends on Line 9 of Form 1040. Report your qualified dividends on Line 9b.
Fill out the Qualified Dividends and Capital Gain Tax Worksheet. If you had no capital gains, enter 0 as your Schedule D amount. Dividends are not considered capital gains because they came out of the corporation's earnings.
Calculate the tax on your qualified and unqualified dividends using the worksheet. Qualified dividends are taxed at between 5 percent and 15 percent, depending on your income. Unqualified dividends are taxed at the same tax rate as the rest of your income.
Tips & Warnings
- Fairmark.com: Ordinary Dividends
- Internal Revenue Service: Publication 550: Investment Income and Expenses (pages 18-23)
- Internal Revenue Service: Form 1040 with Instructions
About the Author
Shula Asher Silberstein has been writing fiction and nonfiction since 2006. He writes about social issues, especially those of concern to the LGBTQ community. He has written a novel, "Shades of Gay." Silberstein holds a Master of Fine Arts in screenwriting and fiction from the University of Southern California.