Dividend Income

Dividends paid by corporations are generally subject to federal income tax. In 2011, qualified dividends (which include most but not all dividends) faced the same preferred tax rates as long-term capital gains: 0 percent for taxpayers in the 15 percent tax bracket or below and 15 percent for taxpayers in tax brackets above 15 percent. Non-qualified dividends are taxed at ordinary tax rates. Unless Congress acts, all dividends will be taxed at regular tax rates starting January 1, 2013.

NOTE: The TPC Tax Calculator assumes that all dividends are qualified and therefore face the preferential long-term capital gains tax rate in 2011. To include non-qualified dividends, add their value to "Other Income." Furthermore, because some policy alternatives would continue to give preferential treatment to qualified dividends, you should distinguish between the two kinds of dividends in your input to the tax calculator for all policy options.

Further definitions for "Dividend Income" are available here.