One of the most important is that dividends are a return of cash to an investor. A company can return some money to stock owners by buying back shares or paying a dividend.
For families closer to the median U.S. family income of about $67,521 in 2020, the tax rate on regular income is 12%, but it is 0% on dividends. Those making over $80K will pay 15% on dividends.
Qualified dividends have an advantageous tax rate. But not all dividends are qualified.
– Paid by a U.S. company or a company in a U.S. possession – Paid by a foreign company residing in a country that is eligible for benefits under a U.S. tax treaty – Paid by a foreign company that can be easily traded on a major U.S. stock market
All other dividends are nonqualified dividends or ordinary dividends. Dividends in this category can include stocks that do not meet the above criteria, like REITs, and MLPs.