Which dividends are subject to the same tax rate that applies to net capital gain?

Qualified dividends are subject to the same tax rate that applies to net capital gain because they meet specific criteria established by the IRS. To qualify, these dividends must generally be paid by U.S. corporations or qualified foreign corporations and the shares must have been held for a minimum period — typically more than 60 days within the 121-day period that begins 60 days before the ex-dividend date for common stock.

The benefit of this classification is that qualified dividends are taxed at the lower long-term capital gains rates, which range from 0%, 15%, or 20%, depending on the taxpayer's income level. This treatment incentivizes investment in stocks, as it allows investors to benefit from reduced tax liability on their dividend income.

In contrast, ordinary dividends are taxed at the individual's ordinary income tax rates, which can be significantly higher than the rates applied to qualified dividends. Exempt dividends, while not taxed, do not fall under the same category as qualified dividends. Corporate dividends, depending on their classification, can be either qualified or ordinary, but they do not inherently possess the tax treatment advantages that qualified dividends offer. Thus, it is specifically qualified dividends that align with the favorable tax rate applicable to net capital gain.