A qualified dividend can be defined as a dividend that qualifies for the deduction of the tax. The reason behind why the dividend qualifies for the deduction of the tax and is labeled as qualified dividend is that it has capital gains that make it subject to the deductions of the tax. The major difference between the ordinary tax rate and the tax that applies to the qualified divided is that the tax rates related to the qualified dividend are often less than that of ordinary tax rates associated with the income. The difference between the ordinary dividend and the qualified dividend is that the ordinary dividend does not qualify for the additional tax rate and is taxed at the same rate as that or the ordinary tax rate. The reason behind this logic is that the ordinary dividend does not qualify for the capital gains. There are a certain criteria for the divided to be qualified as a qualified divided. The list of the criteria that must be fulfilled can be shown as under:-
- The dividend must be paid by an American company or a company that is qualified as a foreign dividend paying company
- The dividends that are not qualified are not listed with the IRS that means in order to be listed with IRS the dividend needs to have some capital gains
- The period for which the dividend must be held with the dividend holder must have been fulfilled in order to label the dividend as a qualified dividend.
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