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Ordinary Dividends

Dividends are what the shareholders of a company get, as their share of the company’s profits. If you own stocks, mutual funds, or bonds, you receive dividends from these investments.

Based on how long the investor has held them, dividends are divided into two categories: ordinary dividends and qualified dividends. Ordinary dividends are taxed as ordinary income, unlike qualified dividends which are taxed at the preferential rate on long-term capital gains of either 0% or 15%.

Ordinary dividends are reported in box 1 of Form 1099-DIV, which must be issued if a taxpayer received more than $10 of dividend income during the year.

Barring further changes to the law, at the end of 2012 qualified dividends are set to revert to being treated as ordinary dividends, with all dividend income taxed at the ordinary income rate.