At what tax rate are qualified dividends generally taxed?

Qualified dividends are generally taxed at the long-term capital gains tax rate. This preferential treatment is designed to encourage investment in stocks and other securities that generate dividends. Unlike ordinary income, which is taxed at the individual’s regular income tax rate, qualified dividends benefit from lower tax rates. The long-term capital gains tax rate can range from 0% to 20%, depending on the taxpayer's taxable income and filing status.

To qualify for this favorable rate, dividends must meet certain criteria, such as being paid by a U.S. corporation or a qualifying foreign corporation on shares that have been held for a minimum period. This distinction is important, as it incentivizes investors to hold onto their investments longer rather than engage in short-term trading, which is subject to higher ordinary income rates.