Is there a maximum cap on the tax percentage that the IRS assesses on stock dividend payouts?

Question

I have a stock BPT (NYSE) which I keep just for the 10%+/year dividend it has been paying out. Will the capital gains taxes which I get charged on these dividends be equal to whatever tax bracket I am in, or is there a fixed tax rate on them which may be at some % less than my tax bracket (which I think is around 33 or 35%)? I'm hoping obviously that the latter is the case as I'd rather not get charged 30% in taxes on the 10% dividend that I'm making. Also, would the tax rate on stock dividend payout be affected in any way on how long I had held the stock? Thanks in advance for any pertinent and knowledgeable responses.

Answer 1

This is a domestic stock. The dividends it issues may be qualified, meaning they are taxed at the same rate as long-term capital gains. In your case, the tax on qualified dividends is 15%.

In order for your dividends to be qualified, you must hold the stock for at least 61 days. The 61 days have to be in the period starting 60 days before the ex-dividend date, to 60 days after the ex-dividend date (total of 121 days).

In January or early February 2008 you should receive a 1099DIV from your financial institution showing the dividends paid and the amount of those dividends that are qualified.

Any dividends that are not qualified are taxed at your ordinary income tax rate, in your case over 30%.

Answer 2

Only qualified dividends are taxed as capital gains. Your statement would specify how much of the dividends were qualified dividends, if any. All ordinary dividends are taxed as ordinary income. The rate will depend upon your marginal tax rate. The highest rate is 35% though only the highest income taxpayers pay that much. Most taxpayers are in the 25% or 28% bracket at most.

The length of time you held the stock has no affect on the tax rate on dividends. You're confusing the long-term capital gains tax on the gain on sale with ordinary dividends. The two are not the same.

Answer 3

You don't pay capital gains rates on dividends, it's taxed as ordinary income so that'll be whatever tax bracket you're in. And the tax on gain from sale depends on how long you've held it, but that doesn't affect the dividend rate.

Answer 4

If they are "qualified" dividends and you are in a bracket above 15%, they are taxed at 15%. If they are "qualified" and you are in the 15% bracket or lower, then they are taxed at 5% or 0%. If they are not "qualified" dividends, then they are taxed at your regular tax bracket.