Are non-qualified dividends taxed at the same rates as federal ordinary income?

Non-qualified dividends are indeed taxed at the same rates as federal ordinary income. This classification stems from the nature of non-qualified dividends, which are typically paid by entities that do not meet the criteria for qualified dividends. Qualified dividends enjoy favorable tax rates that are lower than those for ordinary income, whereas non-qualified dividends do not benefit from these reduced rates.

Taxpayers must recognize the distinction between qualified and non-qualified dividends to accurately report their income and pay the correct amount of tax. Non-qualified dividends are reported and taxed as part of an individual's ordinary income, which can range from 10% to 37%, depending on the taxpayer's overall taxable income and filing status. Understanding this taxation mechanism is crucial for anyone preparing taxes or assessing their tax liability related to dividends.