How are stock dividends taxed in the US?

Important: This article is for educational purposes only and doesn’t constitute tax or financial advice. Tax treatment may vary based on your personal circumstances. For personalized guidance, consult a qualified tax professional or financial advisor. Some products mentioned are not offered by Crypto.com Stocks. 

What are stock dividends?

Stock dividends are payments made by a company to its shareholders, typically drawn from its earnings. These payments can take two main forms:

• Cash dividends: The most common type, where you receive a set amount of cash per share.
• Share dividends: Instead of cash, you receive additional shares of the company.

Dividends represent income from your investments and the IRS treats them as taxable. However, how much you owe depends on whether your dividends are qualified or non-qualified – a distinction that determines your tax rate.

What are stocks and how do they work?

Qualified vs. non-qualified dividends

Qualified dividends

To qualify for lower tax rates, dividends must meet specific criteria:

1. They must be paid by a US corporation or a qualified foreign company.
2. The shares must be held for a minimum holding period – generally more than 60 days within a 121-day window around the ex-dividend date.

Non-qualified dividends

Dividends that don’t meet these criteria, such as those from Real Estate Investment Trusts (REITs), money market funds or short-term holdings, are taxed at your ordinary income tax rate, which can be higher.

Current dividend tax rates in the US (2025)

The IRS applies the following federal tax rates to qualified dividends:

For non-qualified dividends, the tax rate aligns with your ordinary income bracket – ranging from 10% to 37%.

Important note: These rates are subject to change. Always check the latest IRS guidelines when filing your return.

How to calculate taxes on dividends

You’ll typically receive a Form 1099-DIV from your broker summarizing your dividend income for the year. Here’s a simplified example of how to calculate your dividend taxes:

1. Determine your dividend type – Check if your dividends are qualified or non-qualified (Box 1a and 1b on Form 1099-DIV).
2. Apply the appropriate rate – Qualified dividends use the long-term capital gains rate; non-qualified use your income tax rate.
3. Report your income – Include your dividends on Form 1040 (and Schedule B if your total dividends exceed $1,500).

Dividend reinvestment and tax implications

If you’re reinvesting dividends through a Dividend Reinvestment Plan (DRIP), the IRS still treats those dividends as taxable income in the year they’re paid, even though you don’t receive them in cash. 

DRIPs simply use those dividends to automatically purchase additional shares of the same stock – a convenient feature, but one that doesn’t change their tax status.

Each reinvested dividend increases your cost basis, which can reduce taxable gains when you sell the shares later. Keeping detailed records of reinvested dividends helps ensure accurate reporting at tax time.

How dividend taxes are commonly managed

While dividend income is generally taxable, the way it’s treated can vary depending on the type of account and how long investments are held. Below are a few factors that can influence how dividends are taxed:

• Tax-advantaged accounts
  Dividends received within certain retirement or investment accounts, such as IRAs or 401(k)s, may receive tax-deferred or tax-exempt treatment, depending on the account type and individual circumstances.
• Holding periods
  The length of time an investor holds a stock can affect whether a dividend qualifies for lower long-term tax rates or is treated as ordinary income.
• Portfolio composition
  Some investors hold a mix of high-yield dividend stocks and growth-oriented holdings, which could result in different tax implications depending on how returns are realized.

Learn more about dividend yield in stocks

Key IRS forms for dividend reporting

When filing your tax return, the following forms are relevant:

• Form 1099-DIV: Issued by brokers to report dividends and distributions.
• Schedule B (Form 1040): Required if you have more than $1,500 in taxable dividends.
• Form 1040: The main individual income tax return.

You can find detailed instructions for each on the IRS website.

Filing deadlines and compliance

The standard tax filing deadline in the US is April 15, though it may shift slightly depending on weekends or holidays. Extensions can be requested using Form 4868.

Keep in mind that both federal and state tax rules may apply to your dividend income, depending on where you reside.

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