Qualified dividends, as defined by the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 Internal Revenue Code

Internal Revenue Code

The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

, are ordinary dividends that meet specific criteria to be taxed at the lower long-term capital gains tax rate

Capital gains tax in the United States

In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. Capital gains are generally taxed at a preferential rate in comparison to ordinary income...

 rather than at higher tax rate

Rate schedule (federal income tax)

A rate schedule is a chart that helps United States taxpayers determine their federal income tax burden for a particular year. Another name for “rate schedule” is “rate table.”- Origin :...

 for an individual's ordinary income

Ordinary income

Under the United States Internal Revenue Code, the type of income is defined by its character. Ordinary income is usually characterized as income other than capital gain...

. From 2003 to 2007, qualified dividends were taxed at 15% or 5% depending on the individual's ordinary income tax bracket

Tax bracket

Tax brackets are the divisions at which tax rates change in a progressive tax system . Essentially, they are the cutoff values for taxable income — income past a certain point will be taxed at a higher rate.-Example:Imagine that there are three tax brackets: 10%, 20%, and 30%...

, and from 2008 to 2012, the tax rate on qualified dividends was reduced to 0% for tax payers in the 10% and 15% ordinary income tax brackets.

In order to be taxed at the qualified dividend rate, the dividend must:

• be paid between January 1, 2003 and December 31, 2012,
• be paid by a U.S. corporation
  Corporation
  A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
  
  , by a corporation incorporated in a U.S. possession, by a foreign corporation located in a country that is eligible for benefits under a U.S. tax treaty that meets certain criteria, or on a foreign corporation’s stock that can be readily traded on an established U.S. stock market
  Stock market
  A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
  
   (e.g., an American Depositary Receipt
  American Depositary Receipt
  An American depositary receipt is a negotiable security that represents the underlying securities of a non-U.S. company that trades in the US financial markets...
  
   or ADR), and
• meet holding period requirements: You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it.

For dividends that meet the above criteria, the effective qualified dividend tax rate is determined by the date on which the dividend was paid and the individual's ordinary income tax bracket. After December 31, 2012, all dividends will be taxed as ordinary income, and ordinary income tax rates return to those in effect in 2000. The following table summarizes the taxation of qualified and non-qualified dividends in the United States from 2003 forward.

Dividend Taxation in the United States: 2003 -

2003–2012					2013 -
	2003–2007		2008–2012		2013 -
Ordinary Income Tax Rate	Ordinary Dividend Tax Rate	Qualified Dividend Tax Rate	Ordinary Dividend Tax Rate	Qualified Dividend Tax Rate	Ordinary Income Tax Rate	Ordinary Dividend Tax Rate	Qualified Dividend Tax Rate
10%	10%	5%	10%	0%	15%	15%	15%
15%	15%	5%	15%	0%	28%	28%	28%
25%	25%	15%	25%	15%	31%	31%	31%
28%	28%	15%	28%	15%	36%	36%	36%
33%	33%	15%	33%	15%	39.6%	39.6%	39.6%
35%	35%	15%	35%	15%

The Jobs and Growth Tax Relief Reconciliation Act of 2003

Jobs and Growth Tax Relief Reconciliation Act of 2003

The Jobs and Growth Tax Relief Reconciliation Act of 2003 , was passed by the United States Congress on May 23, 2003 and signed into law by President George W. Bush on May 28, 2003...

 ("JGTRRA") reduced all tax payers' personal income tax rates and cut the tax rate on qualified dividends from the ordinary income tax rates to the lower long-term capital gains tax rates. At the same time the bill reduced the maximum long-term capital gains tax rate from 28% to 15% and established a 5% long-term capital gains tax rate for tax payers in the 10% and 15% ordinary income tax brackets. The Tax Increase Prevention and Reconciliation Act of 2005

Tax Increase Prevention and Reconciliation Act of 2005

The Tax Increase Prevention and Reconciliation Act of 2005 was enacted on May 17, 2006.This bill prevents several tax provisions from sunseting in the near future. The two most notable pieces of the bill are the extension of the reduced tax rates on capital gains and dividends and extension of the...

 ("TIPRA") prevented several tax provisions of the 2003 bill from sunsetting until 2010 and further lowered the tax rate on qualified dividends and long-term capital gains to 0% from 5% for low to middle income tax payers in the 10% and 15% ordinary income tax bracket. On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 , was passed by the United States Congress on December 16, 2010 and signed into law by President Barack Obama on December 17, 2010....

. The legislation extends for two additional years the changes enacted to the taxation of qualified dividends in the JGTRRA and TIPRA.