Taxes on Dividends: Answers to 4 Key Questions

In most cases everyone must pay taxes on dividends. Dividends are considered income. Check out this story for answers to 4 key questions on taxes on dividends. 

John D. Rockefeller understood the power of dividends. He has been quoted as saying, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

Dividends return money to investors to buy more shares, purchase a new investment, or keep cash on hand.

Why do investors love dividends?

Families in the highest income tax bracket pay a 37% tax rate on regular income and only a 20% tax rate on dividends.

What is the tax rate on dividends?

In general no. You pay taxes today whether you reinvest the dividends or cash them out. However, if you earn less than $40,000 a year single, $80,000 for couples, you don't have to pay taxes on dividends.

Can you avoid taxes on dividends?

You don't have to pay taxes on dividends earned through a tax-advantaged account. However, you may have a penalty if the money is withdrawn early.

Do I pay taxes on tax-advantaged accounts?

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