A Worldwide Guide to Comprehending How Your US Dividend Income Is Taxed
If you own shares of US corporations and receive dividends—whether you are a US resident or not—you might be asking: what share of that income ends up going to the IRS? The solution hinges on several factors: your residence, tax treaty advantages, the type of dividend, and its reporting method.
This guide will enable you to comprehend the tax rate on US dividends, differentiate between ordinary and qualified dividends, and describe what happens if you’re residing abroad in the United States.
What Are Dividends?
Dividends are distributions by a corporation to its shareholders, typically based on profits. The US tax system recognizes two main types of dividends:
- Qualified Dividends: Taxed at reduced capital gains rates (0%, 15%, or 20%).
- Ordinary (Non-Qualified) Dividends: Taxed at regular income tax rates (up to 37%)
To be eligible for the lower rate, dividends should be:
- Paid by a US or qualified foreign corporation
- Held for a defined period (typically 60 days before and after the ex-dividend date).
- Not subject to the IRS’s non-qualified dividend regulations
US Dividend Tax Rates for Residents
| Type of Dividend | Tax Rate (2025) |
| Qualified Dividends | 0%, 15%, or 20% (depending on income) |
| Ordinary Dividends | 10% to 37% (normal income rates) |
Example:
If you are a US taxpayer with a salary of $60,000 and you earn $2,000 in qualified dividends, you’ll pay 15%, or $300 in dividend tax.
US Dividend Taxes for Foreign Investors
If you are a non-resident alien (NRA) and you’re receiving dividends from US firms, these payments are subject to a flat 30% withholding tax, unless the rate is lower under a tax treaty.
| Country Example | Default Withholding | Treaty Rate (If Applicable) |
| Canada | 30% | 15% |
| UK | 30% | 15% |
| Australia | 30% | 15% |
| Singapore | 30% | 0% (in certain cases) |
| Germany | 30% | 15% |
You need to submit a Form W-8BEN to your US financial institution to claim a reduced rate under a treaty.
Essential Forms of Dividend Taxation
- Form 1099-DIV: Provided to US taxpayers indicating dividend income
- Form W-8BEN: Submitted by non-residents to certify treaty benefits
- Form 1040: Received by US taxpayers as the form to report all taxable income
- Schedule B: Necessary if your dividend income is over $1,500.
- Form 1116: Applied by expats to claim Foreign Tax Credit in case taxed on the same dividends overseas
US Expats: Do You Pay Tax on US Dividends?
Yes. As a US citizen or Green Card holder, you’re taxed on your worldwide income—yes, this includes US dividends—regardless of where you live.
But you may avoid double taxation in two ways:
- Foreign Tax Credit (Form 1116): Take credit for foreign taxes paid on the same income
- Foreign Earned Income Exclusion (Form 2555): Note: This only applies to earned income, not passive income like dividends
How to Calculate Tax on Dividends
- Determine the type: Are your dividends qualified or ordinary?
- Check your tax bracket: This impacts your qualified dividend rate
- Apply the treaty rate: If you’re a non-resident claiming a reduction
- Withholding: For non-residents, tax is typically withheld before payout
- Report accurately: Use the appropriate forms based on your status.
Common Scenarios
Scenario 1:
A Canadian citizen with a US brokerage account receives $10,000 in dividends.
- Default rate: 30% = $3,000 withheld
- With tax treaty: 15% = $1,500 withheld (if W-8BEN is filed)
Scenario 2:
A US citizen living in Spain receives $5,000 in qualified dividends on US stocks.
- Presumably taxed at 15% = $750
- Can claim Foreign Tax Credit if Spain also taxed this income
Tips to Reduce Tax on Dividends
- Invest in tax-favored accounts (e.g., US-resident Roth IRA)
- Keep assets long enough to be eligible for lower tax rates
- Diversify globally to disperse tax risk
- Non-residents: Use a W-8BEN to escape paying the complete 30%
- US expats: Use Form 1116 to reduce overall liability.
Frequently Asked Questions (FAQs)
Do I need to pay tax on dividends if I do not reside in the US?
Yes. If they are dividends from US corporations, non-residents withhold up to 30% unless a treaty is in effect.
What is the tax on qualified dividends?
0%, 15%, or 20%, depending on your income and residency status.
Do I continue to pay US tax on dividends if I am abroad as a US citizen?
Yes, the US taxes citizens on their worldwide income, including dividends from US corporations.
Are dividends tax-free?
Only in a few situations, such as if your earnings are very low and you are eligible for the 0% tax bracket on qualified dividends.
What distinguishes qualified dividends from ordinary dividends?
Qualified dividends satisfy specific IRS guidelines and receive reduced tax rates. Ordinary dividends are taxed as ordinary income.
Do foreign investors receive a 1099-DIV?
No. Unless they are US persons, they usually won’t get a 1099-DIV. Their brokerage will withhold the proper tax.
What if I don’t file Form W-8BEN?
The IRS mandates your broker to withhold the complete 30% unless you have documentation showing that you are treaty eligible.
READ MORE
Final Thoughts
US dividends are a stable source of income—but they’re subject to taxation duties that depend on your location, citizenship or foreign investor status, and the type of dividend you’re getting.
Whether investing abroad or within the US, knowing tax rates on US dividends saves you surprises—and potentially reduces your tax amount.
When in doubt, consult a tax professional, especially if you’re managing cross-border assets or unsure how tax treaties apply to your situation.