A qualified dividend is a form of dividend that is taxed using the current rates supplied in a capital gains tax table. In many situations, the taxes applied to this type of dividend are lower than the standard or regular rates that would apply with different types of securities. In order to be classified as a qualified dividend, the gain must meet specific criteria set in place by the revenue agency that collects the taxes due.
While the standards for identifying a qualified dividend will vary somewhat from one country to another, there are a few basic characteristics that are likely to apply in any situation. One has to do with the company that issues the security. In most nations, the dividend will be considered qualified if issued by a domestic company or an international company that has met the qualifications for receiving a tax status that is very similar to that of a domestic company.
Another typical characteristic of a qualified dividend is that the revenue agency has not specifically identified the security associated with the dividend as being ineligible for taxation at the lower tax rates. Depending on the tax agency involved, this status may be due to a number of factors, including current non-compliance of the issuing company with one or more governmental regulations. Most revenue agencies provide investors with access to listings of securities that are not eligible for this status.
A final common feature of a qualified dividend is that the holding period required by the revenue agency has been successfully completed. In the event that this period has not been fulfilled, the dividend is considered to be an ordinary dividend and is taxed according to standard tax tables. The length of the holding period will vary from one nation to another, with sixty days that are included in the four month period before and after the ex-dividend date associated with the security being somewhat common around the world.
For many investors, the focus is usually on how to go about paying the right amount of taxes on a qualified dividend. By verifying the status of the dividend with the appropriate tax agency, the investor can render a complete and accurate return, pay whatever taxes are owed, and enjoy the remaining benefits derived from the dividend. Making sure that the dividend is qualified before filing a return helps to minimize the chances of owing additional taxes at a later date, along with any late fees or penalties that may be assessed by the tax agency.
