Qualified Dividends Keep Preferential Tax Treatment for Most Taxpayers in 2013

Qualified dividends are taxed at lower rates. Many ordinary dividends received are also classified as qualified dividends. The amount of the qualified dividends will be shown in box 1b of Form 1099-DIV or on a similar statement received from a fund or an individual stock.

Qualified dividends are taxed at the same lower rates that apply to a net capital gain.

•Qualified dividends are taxed at 15% if the regular tax rate that would apply is 25% or higher.

•Qualified dividends are taxed at 0% if the regular tax rate that would apply is lower than 25%.

NEW 20% RATE EFFECTIVE FOR TAX YEAR 2013
FOR HIGHER INCOME TAXPAYERS

Under the American Taxpayer Relief Act (ATRA) of 2012, for 2013 and after, a new 20% capital gain rate applies to taxpayers in the new top 39.6% tax bracket. The ATRA extended permanently the 15% and 0% rates on qualified dividends for taxpayers below the top 39.6% tax bracket.

The new 39.6% tax bracket applies to the following taxpayers:

•Single taxpayers with income above $400,000

•Head of Household taxpayers with income above $425,000

•Married Filing Jointly and Qualifying Widow(er) taxpayers with income above $450,000

•Married Filing Separately taxpayers with income above $225,000

NOTE. Ordinary dividends that are NOT qualified dividends continue to be taxed at ordinary tax rates.

Criteria to be classified as qualified dividends. To be a qualified dividend subject to the 0% or 15% rate, a dividend must meet all of the following requirements:

1.The dividend must have been paid by a U.S. corporation or a qualified foreign corporation.

2.The dividend must not be of a type excluded by law from the definition of a qualified dividend.

3.The taxpayer must meet the holding period requirement.

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