Tax Facts

705 / What lower rates apply for qualified dividend income?

Under prior law, dividends were treated as ordinary income and, thus, were subject to ordinary income tax rates. Under JGTRRA 2003, “qualified dividend income” (see Q 706) is treated as “net capital gain” ( Q 706) and is, therefore, subject to capital gains tax rates. This treatment continues after the 2017 tax reform law was enacted, but the income thresholds for determining which rate applies were changed. For capital gains rates, see Q 704.


The preferential treatment of qualified dividends as net capital gains was scheduled to “sunset” (expire) on December 31, 2012, after which time the prior treatment of dividends was to become effective.1 In other words, dividends were once again to be taxed at ordinary income tax rates. The American Taxpayer Relief Act of 2012 prevented this sunset and made the treatment of qualified dividend income as net capital gain permanent.2





1. IRC § 1(h)(1); TIPRA 2005 § 102, amending JGTRRA 2003 § 303.

2. ATRA 2012, Pub. Law No. 112-240.


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