Last Updated: April 2026
Dividend income — from stocks, ETFs, REITs, and mutual funds — is taxed differently depending on whether it is 'qualified' or 'ordinary' (non-qualified). Federally, qualified dividends receive preferential 0%/15%/20% rates. Most states, however, do not distinguish between qualified and ordinary dividends — they tax both at the standard income tax rate, which can reach 13.3% in California.
This guide covers how each state taxes dividend income, the combined federal + state rate, and key considerations for income investors and retirees.
Understanding the federal distinction is critical:
Taxed at preferential capital gains rates (0%/15%/20%). Qualify if: paid by a US corporation or qualified foreign corporation AND you hold the stock for more than 60 days during the 121-day period around the ex-dividend date. Most dividends from S&P 500 stocks held for the required period qualify.
Taxed as ordinary income at 10–37% federal rate. Applies to: REITs (real estate investment trusts); money market fund dividends; dividends from foreign companies not qualifying under treaty; short-term holding period situations.
| Filing Status | 0% | 15% | 20% |
|---|---|---|---|
| Single | Up to $47,025 | $47,026–$518,900 | Above $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,051–$583,750 | Above $583,750 |
| Married Filing Separately | Up to $47,025 | $47,026–$291,850 | Above $291,850 |
These states charge no state income tax on dividends (or any income):
For retirees living on dividend and interest income, moving to Florida, Texas, or Nevada can save significantly: on $50,000 in annual dividend income, California charges $3,250–$6,650 in state tax; Florida charges $0.
States that tax dividends as ordinary income at high marginal rates:
| State | Top Rate on Dividends | Combined Rate (Fed 20% + State) |
|---|---|---|
| California | 13.3% | ~37% (plus 3.8% NIIT = ~37%) |
| New Jersey | 10.75% | ~34.55% |
| Oregon | 9.9% | ~33.7% |
| Minnesota | 9.85% | ~33.65% |
| Vermont | 8.75% | ~32.55% |
| Iowa | 8.53% | ~32.33% |
| New York State | 10.9% | ~34.7% |
| New York + NYC | 14.776% | ~38.576% |
| Wisconsin | 7.65% | ~31.45% |
| Idaho | 5.8% | ~29.6% |
REIT (Real Estate Investment Trust) dividends are particularly relevant for income investors because they are taxed as ordinary income at the federal level (not at the preferential qualified dividend rate). Key considerations:
For retirees with significant REIT holdings: living in a no-income-tax state like Florida versus California saves a meaningful percentage of REIT dividend income annually. On $30,000/year in REIT dividends, California charges approximately $2,400–$4,000 in state tax; Florida charges $0.
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High dividend income, REIT portfolios, and foreign dividend tax credits require specialist tax expertise. A CPA can optimise your investment account allocation and state domicile to minimise dividend tax. Get matched with a specialist CPA.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
Get Matched With a CPA →No — California taxes all dividends (qualified and ordinary) as ordinary income at California's regular income tax rates, which peak at 13.3%. There is no preferential rate for qualified dividends at the state level. This means a California investor in the 13.3% bracket pays 20% federal + 13.3% California + 3.8% NIIT = 37.1% total on qualified dividends from long-term stock holdings. The same investor in Florida pays only 23.8% (20% + 3.8% NIIT + 0% state). This is why California is particularly expensive for dividend investors.
Tennessee's Hall Income Tax, which taxed interest and dividend income at 2% (and previously higher), was fully eliminated as of January 1, 2022. Tennessee previously had no income tax on wages but did tax investment income. The elimination means Tennessee is now a full no-income-tax state — joining Florida, Texas, Nevada, Wyoming, South Dakota, and Alaska with zero state tax on dividends, interest, and capital gains. This makes Tennessee (Memphis, Nashville, Knoxville) increasingly attractive for retirees and passive income earners moving from higher-tax states.
No — dividend income is not subject to Social Security (FICA) tax for employees or self-employment tax. Social Security tax (12.4%) and Medicare tax (2.9%) only apply to earned income (wages, salaries, net self-employment income). However, the 3.8% Net Investment Income Tax (NIIT) does apply to dividends, interest, capital gains, and other passive income if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). The NIIT is sometimes informally called the 'investment income Medicare surcharge' but operates differently from standard Medicare tax.
Foreign dividends may qualify for the preferential qualified dividend rate if: the foreign company is a qualified foreign corporation (incorporated in a US tax treaty country or traded on a US exchange); AND you meet the holding period requirement (60+ days within the 121-day window). Most dividends from ETFs holding foreign stocks (like VXUS or EFA) are reported as qualified to the extent the underlying foreign dividends qualify. Foreign dividend tax withheld at source (typically 15% under most US treaties; 25–30% without treaty) can be credited against US tax via the Foreign Tax Credit. Proper use of the FTC can eliminate double taxation on most foreign dividends.