Dividends are taxed either as ordinary income or as qualified dividends. In order to be taxed as a qualified dividend, the investor "must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date," as the IRS explains in Publication 550.
The tax rate on qualified dividends is 0% or 15% (depending on the individual's income tax rate). If the individual has a regular income tax rate of 25% or higher, then the qualified dividend tax rate is 15%. If the individual's income tax rate is less than 25%, then qualified dividends are taxed at the zero percent rate.
Ordinary and qualified dividends are reported on Form 1099-DIV. All dividends paid will be reported as ordinary dividends on Form 1099-DIV box 1a. Some or all of these ordinary dividends may be qualified dividends. Qualified dividends are reported on Form 1099-DIV box 1b.
Dividends are reported on Form 1040 Schedule B and Form 1040 lines 9a and 9b.
