Is the tax rate on interest income same as your regular income? How about the tax rate on dividends?

Answer 1

Ordinary interest and ordinary cash dividends are taxed as ordinary income. If the dividends are listed as qualified dividends, they are treated as a long-term captial gain and taxed at the lower long-term captial gains rate, normally 15%.

Answer 2

Yes, the tax rate on taxable interest income is taxed at ordinary rates. However, qualified dividends, in general dividends from US companies, max out at 15%.

Answer 3

The income tax rate on interest income is the same as on regular income, with some exceptions. If you have interest directly from the US government (such as savings bonds or T-bills), it is taxable on your federal return, but not on your state or local returns. Interest on select US savings bonds which have been cashed to use for higher education may be exempt from federal tax, as well. Interest from a state or local government is not taxed by IRS, but will be taxed by the states other than the state of issue.

The tax on dividends is more complicated. Some dividends are "qualified" to be taxed at the capital gains rate (maximum of 15%); they are identified on the Form 1099-DIV in box 1b. Capital gains distributions from mutual funds are also taxed at the cap gains rate. Sometimes you'll get a nontaxable distribution that represents a return of capital; these are rare, but are identified on the 1099. Ordinary dividends (i.e., not cap gains distributions) that represent income derived from US obligations is usually tax-free at the state level. Otherwise, dividends are subject to the same tax as your other income.