Yes — VYM dividends are generally qualified dividends, which means they are taxed at the lower long-term capital gains rates rather than as ordinary income. Vanguard reported that 100% of VYM’s 2025 dividend distributions met the qualified dividend income threshold.1Vanguard. Qualified Dividend Income – Year-End Figures The favorable treatment is not automatic, though. You have to hold your shares long enough, and a small slice of the payout can lose qualified status depending on what the fund holds during the year.
Why VYM’s Payouts Qualify
VYM holds common stocks of U.S. companies with above-average dividend yields. Under federal tax law, dividends paid by domestic corporations count as qualified dividend income and are taxed at 0%, 15%, or 20% instead of ordinary income rates that run up to 37%.2Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed The same treatment extends to dividends from certain foreign corporations, but VYM’s portfolio is almost entirely domestic, so that carve-out rarely matters here.
The rationale is that these companies have already paid corporate-level tax on their earnings. Taxing the same money again at full ordinary rates when it reaches you would compound the hit, so Congress set a lower rate for this category of dividend.
The Holding Period You Have to Meet
Owning a fund full of qualifying domestic stocks is only half the test. To claim the qualified rate on your return, federal law requires you to hold your VYM shares for more than 60 days during the 121-day window that begins 60 days before the ex-dividend date.3Legal Information Institute. 26 USC 1(h)(11) – Qualified Dividend Income The ex-dividend date is the first trading day on which new buyers no longer receive the upcoming payment.
Buy VYM right before a distribution and sell shortly after, and you likely won’t clear 60 days. Those dividends get reclassified as ordinary income and taxed at your full marginal rate, even though the underlying stocks would have qualified. The holding period is measured at the shareholder level, not the fund level.
If you hold VYM through multiple quarters as a long-term investor, you satisfy the rule automatically without tracking ex-dividend dates. The requirement mostly catches short-term traders trying to grab a payout.
When Part of a Distribution May Not Qualify
The 100% qualified figure for 2025 can shift year to year based on what the fund holds and what it does inside the portfolio. A few things can knock a portion out of qualified status:
- Interest earned on cash reserves the fund keeps for operational purposes. Interest income is ordinary, not qualified.
- Real estate investment trust dividends. Most REIT payouts do not qualify, because REITs generally avoid corporate-level tax by distributing nearly all their income. Only a small portion the REIT itself designates as qualified will pass through with the lower rate.4Office of the Law Revision Counsel. 26 USC 857 – Taxation of Real Estate Investment Trusts
- Short-term capital gains passed through when the fund sells holdings it owned for less than a year. Those come to you as ordinary income.
The qualified-versus-non-qualified split is decided at the fund level before anything hits your brokerage account. You will not know the exact breakdown until after the tax year ends, but VYM’s focus on large-cap domestic dividend payers has historically kept the qualified percentage very high.
The Rates Your Qualified Dividends Will Pay in 2026
Qualified dividends from VYM are taxed at the same rates as long-term capital gains. For the 2026 tax year, the IRS thresholds are based on your total taxable income, not just your dividend income:5Internal Revenue Service. Revenue Procedure 2025-32
- 0% rate: taxable income up to $49,450 (single), $98,900 (married filing jointly), or $66,200 (head of household).
- 15% rate: taxable income above the 0% ceiling up to $545,500 (single), $613,700 (married filing jointly), or $579,600 (head of household).
- 20% rate: taxable income above the 15% ceiling.
These figures adjust for inflation each year. Qualified dividends stack on top of your other taxable income when determining which rate applies, so if wages already put you in the 15% bracket, your dividends may straddle two rates.
Extra Taxes That Can Apply on Top
Higher-income investors face an additional 3.8% net investment income tax on all VYM dividends, qualified or not. It kicks in when modified adjusted gross income exceeds $200,000 for single filers, $250,000 for joint filers, or $125,000 for married filing separately.6Internal Revenue Service. Questions and Answers on the Net Investment Income Tax Those thresholds are not indexed for inflation, so more taxpayers cross them over time. A high-income investor in the 20% bracket effectively pays 23.8% on qualified dividends once this surtax is layered on.
Going the other direction, any REIT dividends that flow through VYM may qualify for the Section 199A deduction, which lets you deduct up to 23% of qualifying REIT dividends from taxable income. The holding period for this deduction is more than 45 days during the 91-day window around the ex-dividend date, slightly shorter than the qualified dividend rule.7Internal Revenue Service. Instructions for Form 1099-DIV Because VYM’s REIT exposure is typically small, the deduction rarely moves the needle, but it is worth checking on your 1099-DIV.
Most states tax dividends as ordinary income regardless of federal qualified status, and only a handful offer any reduced rate. Your real after-tax yield from VYM is federal qualified rate plus the 3.8% surtax if it applies plus whatever your state charges.
Checking What Actually Qualified on Your 1099-DIV
Your brokerage sends Form 1099-DIV by January 31 each year. Three boxes tell you what you need to know:
- Box 1a shows total ordinary dividends VYM paid during the year, qualified and non-qualified combined.
- Box 1b shows the qualified portion. Dividing 1b by 1a gives you the qualified percentage.
- Box 5 shows any Section 199A dividends eligible for the REIT deduction.7Internal Revenue Service. Instructions for Form 1099-DIV
These figures flow directly to Form 1040, and most tax software imports them from your brokerage. If Box 1b is lower than you expected, the usual explanation is that you did not hold VYM long enough to satisfy the 60-day rule for one or more of the year’s distributions.