"By Matt Krantz, USA TODAY (2/18/2009)
Q: Are the dividends from exchange-traded (ETF) funds like DIA or SPY considered to be "qualified dividends" for tax purposes?
A: There are two main types of dividends. And that difference becomes very important at tax time.
I'm oversimplifying things. But essentially, dividends paid out of earnings by U.S. corporations are considered so-called qualified dividends. These dividends are eligible for, or qualify for, a lower tax rate that matches your long-term capital gains tax. The maximum tax rate on qualified dividends is 15%, as you can read here.
If dividends aren't qualified, then they may be taxed at your ordinary income tax rate. That's generally higher than 15%, sometimes by a considerable amount. Click this link for more details"