Dividend Taxation: Earning vs. Return on Capital vs. Interest
Dividend cash payments are taxed differently depending on whether this is an Earning Dividend, and Interest Dividend or a Return of Capital dividend:
- Earning dividends are reported as part of your income and are taxed at either your normal tax rate or the lower qualified dividend tax rate, depending on how long you held the shares.
- Interest Dividends are always taxed as regular income, and do not qualify to the lower dividend tax rate.
- Return of capital dividends are taxed as a capital gain at the time you sell.
This only applies to investors paying taxes in the US.
