A result of tax changes enacted in 2003, tax rates on dividends and capital gains were cut to a flat 15% for all investors. Now, the Obama administration and congressional Democrats want to see both rates rise to 20% for married couples earning more than $250,000 per year. However, if partisan gridlock prevents these new rules from getting passed, pre-2001 bracket rates would come into effect by default boosting the tax rate on dividends to just shy of 40% for all investors regardless of their income levels. Given the current state of turmoil on The Hill these days, it's increasingly likely that such a scenario could come about.
Source: Investopedia
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Posted by D4L | Saturday, April 10, 2010 | ArticleLinks | 1 comments »________________________________________________________________
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There are two huge errors in this article:
First, the rate on dividends was NOT a flat 39.6% prior to 2001. Nonsense! Dividends were taxed at the same rate as regular income. If the current law expires, that's what we would revert back to.
Second, the current rate on dividends is NOT a flat 15%. It is 0% on the portion of your income that is in the 10 and 15% bracket. Once your income reaches the 25% (or higher) bracket, THEN dividends are taxed at a marginal rate of 15%.
The rule for long-term capital gains is the same as for qualified dividends.