Dividends are the most common type of distribution from a corporation. They're paid out of the earnings and profits of the corporation.
Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates. The rates on qualified dividends range from 0 to 23.8%
To qualify for the qualified dividend rate, the payee must own the stock for a long enough time, generally 60 days for common stock and 90 days for preferred stock. To qualify for the qualified dividend rate, the dividend must also be paid by a corporation in the U.S. or with certain ties to the U.S.
The payer of the dividend is required to correctly identify each type and amount of dividend for you when reporting them on your Form 1099-DIV for tax purposes. If you receive over $1,500 of taxable ordinary dividends, you must report these dividends on Schedule B of Form 1040.