Definition of 'Qualified Dividend'
To qualify as a qualified dividend, the dividend must be paid by a U.S. corporation or a qualified foreign corporation. The dividend must also be paid out of earnings and profits that were accumulated after 1986.
The amount of the qualified dividend is the amount of the dividend that is paid after deducting any federal income tax withholding. The qualified dividend is taxed at a rate of 15% for most taxpayers. However, taxpayers in the highest tax bracket (37%) pay a 20% tax rate on qualified dividends.
Qualified dividends are reported on Form 1099-DIV. The amount of the qualified dividend is shown in box 1a of the form. The amount of federal income tax withheld is shown in box 2a.
Taxpayers who receive qualified dividends should report them on their Form 1040. The qualified dividends are reported on line 4b of the form. The amount of federal income tax withheld is claimed as a credit on line 56 of the form.
Qualified dividends are a good way to earn income while keeping your taxes low. However, it is important to understand the rules governing qualified dividends so that you can claim the correct tax treatment.
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