Dividend and Investment Tax in United States

Investment income -- dividends, interest, and capital gains -- receives differentiated federal tax treatment in the United States depending on whether the income is "qualified" under the Internal Revenue Code. Understanding the distinction between qualified and ordinary dividends, and where the Net Investment Income Tax applies, is essential groundwork before consulting a qualified US tax professional. See also the United States country overview.

How are qualified dividends taxed in the US?

Qualified dividends are taxed at the same preferential rates as long-term capital gains: 0%, 15%, or 20%, depending on total taxable income. According to IRS Topic 409, for the 2025 tax year a single filer with taxable income up to $48,350 pays 0% on qualified dividends; the 15% rate applies from $48,350 up to $533,400; and the 20% rate applies above $533,400. The rate is determined by total taxable income, with qualified dividends stacked on top of ordinary income.

What is the difference between qualified and ordinary dividends?

Per IRS Topic 404 and IRS Publication 550, a dividend is "qualified" -- and eligible for the lower capital-gains rates -- only if two tests are met. First, the payer must be a US corporation or a qualified foreign corporation (one incorporated in a US possession, covered by a comprehensive US tax treaty, or whose stock trades on an established US securities market). Second, the shareholder must hold the stock for more than 60 days during the 121-day window centered on the ex-dividend date. Dividends that fail either test are "ordinary" dividends, taxed at the filer's regular marginal rate -- 10%, 12%, 22%, 24%, 32%, 35%, or 37% for 2025.

What are the 2025 qualified dividend and long-term capital gains rate brackets?

The table below shows the 2025 income thresholds for each rate tier, as published by the IRS in Topic 409 (derived from Rev. Proc. 2024-40). The same brackets apply to both qualified dividends and long-term capital gains.

Source: IRS Topic 409, Capital Gains and Losses (irs.gov/taxtopics/tc409).

What is the Net Investment Income Tax?

The Net Investment Income Tax (NIIT), imposed under IRC Section 1411, adds a 3.8% surcharge on the lesser of net investment income or the amount by which modified adjusted gross income (MAGI) exceeds filing-status thresholds. According to the IRS NIIT page (irs.gov/individuals/net-investment-income-tax), those thresholds are: $200,000 for single filers and heads of household; $250,000 for married filing jointly and qualifying surviving spouses; and $125,000 for married filing separately. These thresholds are not adjusted for inflation. Net investment income subject to the NIIT includes interest, dividends, capital gains, rental income, royalties, and income from passive business activities. The NIIT does not apply to wages, Social Security benefits, tax-exempt interest, or distributions from qualified retirement plans. Taxpayers calculate the NIIT on Form 8960 and attach it to Form 1040.

A single filer whose MAGI is $220,000 and who has $15,000 of qualified dividends owes 3.8% on the lesser of $15,000 (NII) or $20,000 (MAGI above the $200,000 threshold) -- so 3.8% applies to the full $15,000 of dividends, producing $570 of additional NIIT on top of the regular qualified-dividend rate.

How are long-term capital gains taxed in the US?

Per IRS Topic 409, a capital asset held for more than one year before sale produces a long-term capital gain taxed at the same 0%/15%/20% preferential rate tiers as qualified dividends (see table above). Short-term gains -- from assets held one year or less -- are taxed at ordinary marginal rates, just like ordinary dividends. Three narrow exceptions to the 20% cap exist: gains from collectibles (maximum 28%), unrecaptured Section 1250 real estate depreciation (maximum 25%), and certain qualified small business stock gains. Long-term capital gains may also be subject to the 3.8% NIIT for higher-income filers under the same MAGI thresholds described above.

A qualified US tax professional can assess how these rates interact with your full income picture, filing status, and any applicable state taxes. This page summarizes publicly available IRS guidance and does not constitute individual tax guidance.