How Do Dividends Get Taxed?

Generally, any dividend that is paid out from a common or preferred stock is an ordinary dividend unless otherwise stated.

Qualified dividends are dividends that meet the requirements to be taxed as capital gains.

Under current law, qualified dividends are taxed at a 20%, 15%, or 0% rate, depending on your tax bracket.

How much tax do you pay on dividends?

How much tax do I pay on dividends in 2018-19 and 2019-20?

Income tax bandDividend tax rate
Basic-rate7.5%
Higher-rate32.5%
Additional-rate38.1%

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.

How are dividends taxed 2019?

The dividend tax rate you will pay on ordinary dividends is 22%. Qualified dividends, on the other hand, are taxed at the capital gains rates, which are lower. For the 2019 tax year, you will not need to pay any taxes on qualified dividends as long as you have $38,600 or less of ordinary income.

Are dividends taxable?

Dividend income is taxable but it is taxed in different ways depending on whether the dividends are qualified or nonqualified. Investors typically find dividend-paying stocks or mutual funds appealing because the return on investment (ROI) includes the dividend plus any market price appreciation.