If qualified dividends is taxed at a lower tax bracket (15%), then why don’t I add this 15% tax amount to my total tax? IRS does not calculate it that way. Can someone please explain to me how this is calculated.
How does qualified dividends reduce my tax?
Posted by admin on April 4th, 2010
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Income taxes are assessed on brackets of income. The first bracket is 10%, then 15%, then 25% and then higher. The brackets depend on the filing status.
When a taxpayer has qualified dividends, if the taxpayer is still in the 10% or 15% bracket, the dividends are taxed at 5% and this tax is added to the tax on the rest of the income.
If the taxpayer is in a bracket higher than 15%, then the qualified dividends are taxed at 15%, and this amount is added to the tax on the rest of the income.
Because of the way tax on qualified dividends is figured, it cannot be in a table. A worksheet is used. The easiest way to handle it is with a software program or preparer.