How to Calculate Tax on Dividends: Formula and Worked Examples

Your after-tax dividend yield is your gross yield multiplied by (1 minus your effective tax rate). A 5% yield taxed at 22% leaves 3.90%, and a 4.8% yield taxed at 15% leaves 4.08%, so the lower yield pays you more.

That is why the yield after tax matters more than the yield on the quote page. This guide shows how to calculate tax on dividends by hand: the inputs, the formula, six steps, and two examples you can redo with your own numbers. Rates are for US tax year 2026 and were checked against IRS sources in October 2026.

The formula

There are two versions. The first works in dollars, the second in yield.

Net dividend = gross dividend − foreign withholding − home-country tax + foreign tax credit

After-tax yield = gross yield × (1 − effective tax rate)

The effective tax rate is the total tax on a dividend divided by the gross dividend. It is the number that links the two formulas.

The box descriptions come from the IRS instructions for Form 1099-DIV. Box 1a is the total, and boxes 1b and 5 are parts of it, not additions to it. If you do not live in the United States, your broker reports US dividends and the tax withheld on Form 1042-S instead.

Why the ranking changes after tax

Dividends are not all taxed at the same rate, so sorting holdings by gross yield and sorting them by what you keep give different lists.

Take four holdings in a taxable account. The middle columns are for a single filer in the 22% bracket. The last column is for a single filer in the 32% bracket whose dividends are also fully subject to the 3.8% net investment income tax.

In the 22% bracket the bond fund falls from third place to last: its 5.0% nets less than the US stock's 4.8%. At the higher income the REIT loses first place to the foreign stock, and the bond fund keeps under two thirds of its yield.

The yields here are illustrations, not quotes. The steps below show where each rate comes from.

How to calculate tax on dividends in six steps

Step 1: list your dividends by kind

Sort the year's dividends into three groups, then flag the foreign ones:

• Qualified dividends. Most dividends from US companies and many foreign companies, if you held the shares long enough. See qualified vs ordinary dividends for the holding period.
• REIT dividends. Ordinary income, with a deduction (step 3).
• Other ordinary dividends. Money market funds and taxable bond funds. IRS Publication 550 has you report money market fund payouts as dividends, and they do not qualify for the lower rates.

Then mark every dividend that came from a foreign company, whichever group it is in. A foreign dividend can be qualified or not; what sets it apart is the tax withheld abroad (step 4).

Dividends inside an IRA or a 401(k) are not taxed when they are paid, so their rate in this calculation is 0%.

Step 2: find your rate for each kind

Both rates depend on your taxable income, which is your income after the standard deduction ($16,100 for a single filer and $32,200 for a married couple filing jointly in 2026).

Qualified dividends, from IRS Revenue Procedure 2025-32:

Ordinary dividends, from the 2026 brackets published by the IRS:

Qualified dividends are stacked on top of your other income. If your salary and ordinary dividends, after deductions, already pass the 0% threshold, every dollar of qualified dividends is taxed at 15%, until taxable income reaches the 20% threshold.

Step 3: apply the REIT deduction

You can deduct 20% of qualified REIT dividends, whether or not you itemize. Only 80% of the dividend is taxed, so the effective rate is your bracket multiplied by 0.8.

The deduction has its own holding period: the Form 1099-DIV instructions exclude shares held 45 days or less during the 91-day period that begins 45 days before the ex-dividend date.

Step 4: handle foreign withholding and the credit

A foreign dividend is taxed twice on paper and once in practice. The other country keeps its share first. You then owe US tax on the full gross dividend, and subtract the foreign tax as a credit.

For a $800 dividend with 15% withheld, taxed at 15% in the US: $800 − $120 − $120 + $120 = $680. The total tax is $120, the same as on a US dividend.

The IRS instructions for Form 1116 let you claim the credit directly on your return, without the form, when your creditable foreign taxes are not more than $300 ($600 on a joint return) and were reported on a statement such as Form 1099-DIV.

The credit does not always cover the withholding. Two cases are different. In a taxable account, tax withheld above the treaty rate cannot be credited: you still owe US tax on the gross dividend and take the credit up to the treaty rate, and the excess is a cost until you reclaim it from the foreign country. Inside an IRA there is no US tax and no credit, so the calculation is simply net = gross − withholding. Foreign dividend withholding tax lists the rates by country.

Step 5: add the 3.8% tax and state tax if they apply

The 3.8% net investment income tax. According to IRS Topic 559, it applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). When it applies in full, add 3.8 points to the rate of every kind of dividend. The foreign tax credit cannot be used against it.

State tax. Most states that tax income treat dividends as regular income, with no lower rate for qualified dividends, and a few states have no income tax at all. The rules differ on details such as the REIT deduction, so check your state tax agency. As a rough estimate, add your state's marginal rate to each federal rate: at a 5% state rate, the 16.1% in the example below becomes about 21.1%.

Step 6: divide total tax by total dividends

Add up the tax from steps 2 to 5, including tax withheld abroad, and divide by your gross dividends. The result is your blended rate. It is the one number that turns your portfolio's gross yield into its after-tax yield.

Example 1: a US resident with a mixed portfolio

This is the investor from how dividends are taxed: a single filer with an $85,000 salary and $5,400 of dividends in a taxable account. Here the calculation goes one level further, to each holding.

Step 1. The dividends by kind, with the value of each holding:

Step 2. Taxable income is $85,000 + $5,400 − $16,100 − $180 (the REIT deduction) = $74,120. Without the $4,000 of qualified dividends it is $70,120, which is in the 22% bracket and above the $49,450 threshold. The rates are 22% for ordinary dividends and 15% for qualified dividends.

Steps 3 and 4. The REIT is taxed on $720, which is 80% of $900. Canada's $120 is credited in full.

Step 5. Income is below $200,000, so the 3.8% tax does not apply. State tax is left out.

Step 6. $868.40 ÷ $5,400 = 16.1%. The portfolio's 3.69% gross yield becomes 3.09% after tax.

Two things show up at the holding level. The REIT and the Canadian bank both yield 5.00%, but the bank nets 4.25% and the REIT 4.12%. And the cash follows a different path from the tax: the broker pays in $5,280, because Canada has already kept $120, and $748.40 goes to the IRS later.

The blended rate moves with income. The hub article runs the same portfolio at a $45,000 salary, where the rate is 2.7%, and at $260,000, where it is 22.1%.

Example 2: a non-US resident holding US stocks

An investor who lives outside the United States, and is not a US citizen or US tax resident, does not use the tables above. The IRS states that most US-source income paid to a foreign person is taxed at 30%, withheld from the payment, unless a tax treaty sets a lower rate. The split between qualified and ordinary dividends plays no part in this withholding.

The treaty rate on dividends is 15% for residents of the United Kingdom, Canada, Australia, France and Germany, and 10% for residents of Japan, according to Table 1 of the IRS tax treaty tables. To get it, the investor gives the broker a Form W-8BEN, which stays valid until the end of the third calendar year after it is signed (IRS instructions).

Take $100,000 of US stocks with a 3% yield, so $3,000 of gross dividends:

A missing or expired form costs the 15% investor $450 a year on this portfolio.

This is not the final figure. The investor's home country taxes the same dividend under its own rules and usually gives credit for the US tax. That part depends on the country and is outside this guide. The formula is unchanged: gross, minus US withholding, minus home-country tax, plus the credit your country allows.

Quick reference: after-tax yield by tax rate

Find your gross yield on the left and your effective rate at the top. The 0% column is an IRA, or qualified dividends under the 0% threshold.

A 6% yield at 30% and a 5% yield at 15% land almost in the same place: 4.20% and 4.25%.

Putting your blended rate to work

Once you have the rate from step 6, you can apply it to every future payment instead of redoing the calculation.

In OnlyDividends the tax rate is set per portfolio, not per stock. You enter a default rate once in Settings and can override it for any portfolio. The blended rate is the number to enter: 16% for the investor in example 1, 15% for the treaty investor in example 2, and 0% for a portfolio that mirrors an IRA. The calendar, the income chart and the dividend-day notifications then show amounts after tax. For accounts that are not taxed when dividends are paid, see dividends in retirement accounts.

Redo the calculation when your income changes enough to cross a bracket, or when the mix of holdings changes.

Frequently asked questions

How do I calculate tax on dividends?

Sort your dividends into qualified, REIT, other ordinary and foreign. Apply 0%, 15% or 20% to the qualified part and your income tax rate to the rest, after deducting 20% of REIT dividends. Add foreign tax that was not credited, the 3.8% tax and state tax if they apply.

What is the after-tax yield formula?

After-tax yield = gross yield × (1 − effective tax rate). The effective rate is the total tax on the dividend divided by the gross dividend. A 4% yield at an effective rate of 15% gives 3.40%.

How much tax do I pay on $1,000 of dividends?

For a single filer in the 22% bracket in 2026: $150 if the dividends are qualified, $220 if they are ordinary, and $176 if they come from a REIT. With taxable income under $49,450, qualified dividends are taxed at 0%.

What tax rate should I use to calculate tax on my dividends?

Your blended rate: the total tax on all your dividends divided by the gross amount. Using 15% because most of your dividends are qualified understates the tax if you also hold REITs, bond funds or money market funds.

How do I calculate net dividend income on a foreign stock?

Net dividend = gross dividend − foreign withholding − US tax + foreign tax credit. When the credit covers the withholding, the result is the same as for a US stock. In an IRA there is no credit, so the net is simply the gross minus the withholding.

How much US tax is withheld from dividends paid to non-US investors?

30% by default. A valid W-8BEN lowers it to the treaty rate of the investor's country, which is 15% for the United Kingdom, Canada, Australia, France and Germany, and 10% for Japan.

Do dividends in an IRA reduce my after-tax yield?

Not when they are paid. Dividends inside an IRA or a 401(k) are not taxed in the year you receive them, so the rate to use is 0%. The exception is foreign withholding, which usually still applies and cannot be credited.

Disclaimer

This article is general information about US federal tax, not tax advice. Rates and thresholds are for tax year 2026 and change every year. State taxes and the tax rules of other countries are not covered in detail. The examples are simplified and the yields are illustrations; check with a qualified tax professional before you act.