What are ordinary dividends?

Ordinary dividends are payments that are received from a corporation's profits because the payee owns a portion of the company's stock. Some ordinary dividends are known as qualified ordinary dividends, which are taxed differently.

Most dividends are ordinary unless noted otherwise. Ordinary dividends are reported as regular income, rather than capital gains. Qualified ordinary dividends get a special tax rate. For example, if a person's income tax bracket is 10 to 15 percent, his ordinary dividends are taxed at 10 to 15 percent, while his qualified ordinary dividends are taxed at zero percent. Tax rates on dividends are normally capped at 20 percent.