Examples of Non-Qualified Dividends

Dividends are payments made by companies to their shareholders. They can be either qualified or non-qualified. Qualified dividends are taxed at a lower rate than non-qualified dividends. Here are some examples of non-qualified dividends:

Ordinary Dividends

Ordinary dividends are the most common type of non-qualified dividend. They are paid out of a company’s current earnings or accumulated profits. Ordinary dividends are not eligible for the lower qualified dividend tax rate.

Capital Gain Distributions

Capital gain distributions are payments made by a company to its shareholders out of its realized capital gains. Capital gain distributions are taxed at the same rate as long-term capital gains. However, they are not eligible for the lower qualified dividend tax rate.

Return of Capital

A return of capital is a payment made by a company to its shareholders that represents a return of their original investment. Return of capital payments are not taxable. However, they can reduce the basis of the shareholder’s investment in the company.

Example

Let’s say you own 100 shares of a company that pays a $1 per share dividend. The dividend is ordinary, so it is non-qualified. If you are in the 25% tax bracket, you will pay $25 in taxes on the dividend.

Conclusion

Non-qualified dividends are taxed at a higher rate than qualified dividends. This is because non-qualified dividends are not eligible for the lower qualified dividend tax rate. If you receive non-qualified dividends, you should be aware of the tax implications.

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