You may get a dividend payment if you own shares in a company.
You can earn some dividend income each year without paying tax.
You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).
You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.
You do not pay tax on dividends from shares in an ISA.
Dividend allowance
| Tax year | Dividend allowance |
| 6 April 2024 to 5 April 2025 | £500 |
| 6 April 2023 to 5 April 2024 | £1,000 |
| 6 April 2022 to 5 April 2023 | £2,000 |
| 6 April 2021 to 5 April 2022 | £2,000 |
| 6 April 2020 to 5 April 2021 | £2,000 |
| 6 April 2019 to 5 April 2020 | £2,000 |
| 6 April 2018 to 5 April 2019 | £2,000 |
| 6 April 2017 to 5 April 2018 | £5,000 |
| 6 April 2016 to 5 April 2017 | £5,000 |
The rules are different for dividends before 6 April 2016.
Working out tax on dividends
How much tax you pay on dividends above the dividend allowance depends on your Income Tax band.
| Tax band | Tax rate on dividends over the allowance |
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
To work out your tax band, add your total dividend income to your other income. You may pay tax at more than one rate.
Example
You get £3,000 in dividends and earn £29,570 in wages in the 2022 to 2023 tax year.
This gives you a total income of £32,570.
You have a Personal Allowance of £12,570. Take this off your total income to leave a taxable income of £20,000.
This is in the basic rate tax band, so you would pay:
- 20% tax on £17,000 of wages
- no tax on £2,000 of dividends, because of the dividend allowance
- 8.75% tax on £1,000 of dividends
Pay tax on up to £10,000 in dividends
Tell HMRC by:
You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.
Pay tax on over £10,000 in dividends
You’ll need to fill in a Self Assessment tax return.
If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.
Register for Self Assessment
You’ll get a letter telling you what to do next after you’ve registered.
Register now
You may need to pay tax if you sell your shares.
FAQs
Qualified dividends are taxed at 0%, 15% or 20% depending on taxable income and filing status. Nonqualified dividends are taxed as income at rates up to 37%. IRS form 1099-DIV helps taxpayers to accurately report dividend income.
How do you calculate dividends for taxes? ›
Types of Dividends
If your dividend is eligible, you must add back 38% of your received dividend and deduct 15.0198% from the gross taxable amount as a federal dividend tax credit. Other than eligible dividends, there are those where the corporation has paid a lower tax rate.
What is the tax on dividend amount? ›
Dividend Distribution Tax is levied at the rate of 15% on dividends distributed by a domestic company and mutual fund. The tax is payable by the company or mutual fund and is not borne by the shareholders.
How do I not get taxed on dividends? ›
Your “qualified” dividends may be taxed at 0% if your taxable income falls below $44,625 (if single or Married Filing Separately), $59,750 (if Head of Household), or $89,250 (if (Married Filing Jointly or qualifying widow/widower) (tax year 2023). Above those thresholds, the qualified dividend tax rate is 15%.
How to calculate dividend tax? ›
Tax on dividends is calculated pretty much the same way as tax on any other income. The biggest difference is the tax rates - instead of the usual 20%, 40%, 45% (depending on your tax band), you'll be taxed at 8.75%, 33.75%, and 39.35%.
Do dividends count as income? ›
Key Takeaways
All dividends paid to shareholders must be included on their gross income, but qualified dividends will get more favorable tax treatment. A qualified dividend is taxed at the capital gains tax rate, while ordinary dividends are taxed at standard federal income tax rates.
How do you pay estimated taxes on dividend income? ›
You may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. You can also make your estimated tax payments through your online account, where you can see your payment history and other tax records. Go to IRS.gov/account.
Are dividends taxed if they are reinvested? ›
Dividends from stocks or funds are taxable income, whether you receive them or reinvest them. Qualified dividends are taxed at lower capital gains rates; unqualified dividends as ordinary income. Putting dividend-paying stocks in tax-advantaged accounts can help you avoid or delay the taxes due.
Are dividends taxed higher than capital gains? ›
After the sale of a capital asset, your gains become part of a taxable income. The tax rate for capital gains is higher compared to dividends. Also, short-term capital gains and long-term capital gains have different levels of tax liability.
What is the taxable amount of dividends? ›
Example 1
| Description | Eligible dividend | Non-eligible dividend |
|---|
| Dividend received | $1,000.00 | $1,000.00 |
| Add: Gross-up | $380.00 | $150.00 |
| Taxable dividend | $1,380.00 | $1,150.00 |
| Federal income tax (33%) | $455.40 | $379.50 |
2 more rowsFeb 8, 2024
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes.
How are dividends calculated? ›
If a company announces a dividend as a dollar amount, the dividend is calculated by multiplying the number of shares you own by the amount of the dividend paid. So if you own 1,000 shares of a company, and that company pays a dividend per share of $0.68, you would be paid $668.
How to avoid tax on dividend income? ›
You can submit Form 15G/15H to the company or mutual fund declaring that your total income for the financial year is below the taxable limit. Thus, TDS should not apply to your dividend income. 3. If you have invested in a tax-free bond, you have no TDS. will apply to the interest income received.
What happens if you don't report dividends on taxes? ›
If you don't, you may be subject to a penalty and/or backup withholding. For more information on backup withholding, refer to Topic no. 307. If you receive over $1,500 of taxable ordinary dividends, you must report these dividends on Schedule B (Form 1040), Interest and Ordinary Dividends.
How much dividends are tax-free? ›
Qualified Dividends vs.
Qualified and ordinary dividends have different tax implications that impact a return. 4 The tax rate is 0% on qualified dividends if taxable income is less than $44,625 for singles and $89,250 for joint-married filers in the tax year 2023.
Are dividends taxed if reinvested? ›
The IRS considers any dividends you receive as taxable income, whether you reinvest them or not. When you reinvest dividends, for tax purposes you are essentially receiving the dividend and then using it to purchase more shares.
What is the tax rate for 1099 dividends? ›
Qualified dividends are typically taxed as long-term capital gains. This means that if your highest income tax bracket is 15% or less, you receive these dividends tax-free. If your marginal rate of tax is higher than 15%, your qualified dividends are taxed at 15% or 20%, depending on your income.
How to calculate dividend income from tax returns? ›
You can calculate your after-tax dividend income by multiplying your tax rate by your dividend and subtracting that number from the total dividend income. For example, a qualifying dividend of $50 may be subject to a 15% tax, yielding an after-tax income of $42.50.
