In short, yes.
The IRS considers dividends to be income, so you usually need to pay tax on them.
Even if you reinvest all of your dividends directly back into the same company or fund that paid you the dividends, you will pay taxes.
How much tax do you pay on dividends?
How much tax do I pay on dividends in 2018-19 and 2019-20?
|Income tax band||Dividend tax rate|
How can I avoid paying tax on dividends?
How to pay no tax on your dividend income
- Maximize your deduction and adjustments. Everyone should max out their 401k contribution every year.
- Do your own taxes so you understand the tax code better.
- Reduce your taxable income.
- Live in a state with no income tax.
- If all else fail, you can always retire early and reduce your income that way.
Do you pay tax on share dividends?
Understanding tax on dividends
Your company does not need to pay tax on any dividend payments it issues, but the shareholders may have to pay tax on the dividends they receive based on their personal circumstances, through their annual Self Assessment. The following applies for the 2020/21 tax year.