Ordinary Dividends
Dividends that do not meet the requirements for qualified treatment. They are taxed at your regular income tax rate, which can be significantly higher than qualified dividend rates.
Ordinary (or non-qualified) dividends are dividends that do not meet the IRS holding period or source requirements to be taxed at the lower qualified dividend rates. Instead, they are taxed at your ordinary income tax rates, which can range from 10% to 37%.
Common sources of ordinary dividends include Real Estate Investment Trusts (REITs), money market funds, employee stock options, and dividends on stock held for less than the required holding period. Some foreign corporation dividends may also be classified as ordinary.
On Form 1099-DIV, Box 1a shows your total ordinary dividends, and Box 1b shows the portion of those that qualify for the lower rate. The difference (1a minus 1b) is taxed at ordinary rates. While ordinary dividend taxation is less favorable, investments like REITs can still be attractive because they often offer higher yields that may more than offset the higher tax rate on an after-tax basis.
Related Terms
Qualified Dividends
Dividends that meet IRS holding-period and company requirements, taxed at the lower long-term capital gains rates (0%, 15%, or 20%) instead of ordinary income rates.
Tax Bracket
A range of income taxed at a specific rate. The US uses a progressive system with seven brackets ranging from 10% to 37% for 2025.
Net Investment Income Tax (NIIT)
A 3.8% surtax on investment income (interest, dividends, capital gains, rental income) for individuals with modified AGI above $200,000 (single) or $250,000 (married filing jointly).