Calculate your annual and monthly dividend income, see how reinvesting dividends (DRIP) grows your portfolio over time, and estimate the federal tax on qualified vs ordinary dividends.
Not all dividends are taxed the same. Qualified dividends (from US companies and most foreign companies, held for more than 60 days) are taxed at long-term capital gains rates: 0%, 15%, or 20%. Ordinary dividends (REITs, money market funds, bond fund distributions) are taxed as ordinary income at your marginal rate — up to 37%. On a $20,000 annual dividend income, this difference can be $2,000–$5,000 in annual tax.
| Rate | Single Taxable Income | Married Joint Taxable Income |
|---|---|---|
| 0% | Up to $49,450 | Up to $98,900 |
| 15% | $49,450 – $545,500 | $98,900 – $613,700 |
| 20% | Over $545,500 | Over $613,700 |
The thresholds are taxable income (after deductions). Qualified dividends sit on top of your other income, so part of them can fall in the 0% band and the rest in the 15% band. Higher earners also pay the 3.8% net investment income tax on dividends once income passes $200,000 (single) or $250,000 (married filing jointly).
DRIP (Dividend Reinvestment Plan) automatically uses your dividends to buy more shares. Over long periods, the compounding effect is dramatic. A $250,000 portfolio with a 3.5% yield and 5% yearly price growth grows to about $565,000 in 10 years with dividends reinvested, and pays about $18,200 in dividends in year 10. Without DRIP, the same portfolio is worth about $407,000 and pays about $13,600 in year 10, because you own fewer shares.
Yields above 6%–7% often signal risk: dividend cuts, declining business, or excessive payout ratios. REITs are required to distribute 90% of taxable income as dividends — yields look high but distributions are taxed as ordinary income, reducing after-tax returns. Business Development Companies (BDCs) and covered call ETFs also show elevated yields. Always check the payout ratio (dividends ÷ earnings) — above 80% is a warning sign for sustainability.