How to use this calculator
- Dividend amount: a single payment, or the total for a year.
- Dividend type: qualified or ordinary. Your 1099-DIV shows which is which.
- Federal rate: tap a common rate or type your own. It fills in a typical rate when you switch type.
- State rate: your state’s rate on investment income, or 0.
- Account type: where the shares are held. This changes everything.
- Foreign tax withheld: the percentage another country keeps before paying you, if any.
The formula
Foreign tax = Dividend × Foreign rate
Federal tax = Dividend × Federal rate − Foreign tax credit
State tax = Dividend × State rate
You keep = Dividend − Foreign − Federal − State
Effective rate = Total tax ÷ Dividend × 100
In a taxable account, the foreign tax credit is the foreign tax withheld, up to the US federal tax on that same dividend. In a Roth IRA, traditional IRA, 401(k) or HSA, federal and state tax are $0 when the dividend is paid, and the credit doesn’t apply, so any foreign tax withheld stays withheld.
Worked example
The starting numbers: a $1,000 qualified dividend in a taxable account, a 15% federal rate and a 5% state rate.
- Federal tax: $1,000 × 15% = $150.00.
- State tax: $1,000 × 5% = $50.00.
- Total tax: $150.00 + $50.00 = $200.00.
- You keep $1,000 − $200.00 = $800.00, an effective rate of 20%.
Switch the account to a Roth IRA and you keep the whole $1,000. That difference, repeated every year and reinvested, is why where you hold dividend stocks can matter as much as which ones you hold.
Qualified or ordinary?
A dividend is qualified when it comes from a US company (or a qualifying foreign one) and you held the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date. Qualified dividends get the same low rates as long-term capital gains. Dividends from REITs, money market funds and most bond funds are usually ordinary, as are dividends on shares you held only briefly.
Which of 0%, 15% or 20% applies depends on your total taxable income and filing status, not on the dividend alone. If you aren’t sure of your rate, the Dividend Tax Calculator works it out from your income, using this year’s IRS brackets, and adds the 3.8% net investment income tax for higher incomes.
How each account type works
- Taxable: taxed every year the dividend is paid, whether you spend it or reinvest it.
- Roth IRA or Roth 401(k): no tax when paid; qualified withdrawals in retirement are tax-free.
- Traditional IRA or 401(k): no tax when paid, but every dollar you withdraw later is taxed as ordinary income, even if it started as a qualified dividend.
- HSA: no federal tax when paid, and withdrawals for qualified medical expenses are tax-free. California and New Jersey don’t follow the federal rules for HSAs, so residents there can owe state tax on HSA dividends.
Foreign dividends
Dividends from companies based outside the US often have tax taken out by their home country before the money reaches you. Tax treaties usually cap the rate for US investors, often at 15%, but it varies by country. In a taxable account you can claim the foreign tax credit, which reduces your US tax by the amount withheld. Small amounts (up to $300, or $600 on a joint return) can often be claimed without filing Form 1116.
Inside an IRA there is no US tax to reduce, so foreign tax withheld is a real cost. That’s why some investors keep foreign dividend stocks in taxable accounts and US ones in retirement accounts.
Tip: your broker’s Form 1099-DIV shows foreign tax paid in box 7. Add up a year of it to see how much credit you can claim.