Question

Tim, a single taxpayer, receives $500 of qualified dividends from Exxon in the current year. His taxable income before the dividends is $26,000. Tim’s tax on the dividends will be:

Answer 1

Answer:

Tax on dividends will be $0.

Explanation:

Investors which have ordinary income taxable at 10% or 12% (income up to $39,475 as per 2019-20 tax brackets), applicable tax rate on their qualified dividends is 0%.

Investors which pay income tax rates ranging from 12%-35% have a 15% tax rate on qualified dividends.

The tax rate on qualified dividends is capped at 20%, which is for individuals lying in the band of 35% or 37%.