In what case are dividends taxed at ordinary income rates?

Dividends are taxed at ordinary income rates when they are classified as non-qualified dividends. Non-qualified dividends do not meet the criteria for favorable tax treatment under the qualified dividends category. Qualified dividends are typically taxed at the lower long-term capital gains rates, which can be significantly less than ordinary income tax rates.

To be classified as a qualified dividend, the dividend must meet certain requirements, including being paid by a U.S. corporation or a qualified foreign corporation, being on stock that has been held for a specific period, and being declared from earnings and profits. Dividends that do not meet these criteria—such as those paid on shares held for a period shorter than required, or those from entities that don't qualify—are subject to ordinary income rates.

The other options relate to different tax implications or scenarios. For example, qualified dividends are taxed at a lower rate, exceeding exclusion limits pertains to certain income thresholds affecting taxation, and dividends held in a Roth IRA are generally not taxed since it is a tax-advantaged account. Understanding the distinction between qualified and non-qualified dividends is crucial for tax planning and investment strategies.