Investors often assume that dividends are free money, but they are taxed based on whether you receive non-qualified or qualified dividends. Qualified dividends are dividends from shares in domestic corporations and certain qualified foreign corporations that you have held for a specific holding period. These dividends are taxable on the federal level at the capital gains rate, which depends on your adjusted gross income (AGI) and taxable income. Note that the capital gains are taxed at a lower rate than ordinary income. By contrast, non-qualified dividends‌ may be taxed at your ordinary income tax rate, which could go to a much higher percentage. It's a good idea to consult IRS Publication 550 for details on qualified or non-qualified dividends because there are many rules that govern both types of dividends.