In the eyes of the Internal Revenue Service (IRS) , not all dividends are created equal. Most payments made by a corporation to its shareholders are "ordinary dividends," which are typically taxed at your standard income tax rate. However, (often abbreviated as irsqd in back-end data systems) meet specific criteria that grant them a lower tax rate—0%, 15%, or 20%—depending on your total taxable income. Requirements for a Dividend to be "Qualified"

: The dividend cannot be of a type specifically excluded by the IRS, such as those from Real Estate Investment Trusts (REITs) or Master Limited Partnerships (MLPs), which are generally taxed as ordinary income.

: You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Why "irsqd" Matters for Your Portfolio

: The dividend must be paid by a U.S. corporation or a qualified foreign corporation .

To receive the "irsqd" status on your tax return, the dividend must pass three primary tests mandated by the Internal Revenue Code (IRC):

The difference in tax treatment can significantly impact long-term wealth accumulation. For instance, an investor in the 37% tax bracket would pay 37% on ordinary dividends but only 20% on qualified dividends. Tax Bracket Ordinary Dividend Rate Qualified Dividend (irsqd) Rate 10% – 12% Middle 22% – 35% High

Topic no. 404, Dividends and other corporate distributions - IRS

Note: High-income earners may also be subject to the Net Investment Income Tax (NIIT) of 3.8%.