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Dividends Question

I've got a question about dividends.  I understand that there are exceptions, but I am just wishing to get a very general understanding.

Let's say that as a single filer I make $32,000 a year (gross adjusted income) and I receive $5,000 in qualified dividends in addition to that.  Because I am in the lower tax bracket I will pay no taxes on the dividends.

Now let's say that I get a raise to $35,000 a year and receive $10,000 in dividends in addition to that.  Without dividends I am in a lower tax bracket, with them I am in a higher tax bracket.

Will I pay taxes on dividends?  If I pay taxes on them will I pay no taxes on the dividends until I get to the $39,375 point then pay 12% (as opposed to 15%) on the remaining 5,625?

Thanks for your help.

Cheers -

george

1 Best answer

Accepted Solutions
Hal_Al
Level 15

Dividends Question

You will pay no taxes on the dividends until you get to the $39,375 point. But, the $39,475 (not 39,375) is taxable income, not AGI.  But then you will  pay 15% (not 12%, but also not 24%) on QD.

 

Your AGI includes any qualified dividends (QD). So, in your first example, your AGI is $32000 + $5000 = $37,000.  Your taxable income is 37,000 - 12,200 (standard deduction) = $24, 800. None of your QD are taxable (technically taxed at 0%).

 

Your 2nd example has the same results. QD taxed at 0%.

 

Let's make a 3rd example. $45,000 salary and $10,000 QD = $55,000 AGI. 55,000-12,200= 42,800 taxable income.  42,800 - 39,475 = $3,325 QD will be taxed at 15%.  $6675 QD will be taxed at 0%.

Note that while you are technically "in the 24% tax bracket", none of your income is taxed at 24%, because of the special rate for QD. 

View solution in original post

2 Replies
Hal_Al
Level 15

Dividends Question

You will pay no taxes on the dividends until you get to the $39,375 point. But, the $39,475 (not 39,375) is taxable income, not AGI.  But then you will  pay 15% (not 12%, but also not 24%) on QD.

 

Your AGI includes any qualified dividends (QD). So, in your first example, your AGI is $32000 + $5000 = $37,000.  Your taxable income is 37,000 - 12,200 (standard deduction) = $24, 800. None of your QD are taxable (technically taxed at 0%).

 

Your 2nd example has the same results. QD taxed at 0%.

 

Let's make a 3rd example. $45,000 salary and $10,000 QD = $55,000 AGI. 55,000-12,200= 42,800 taxable income.  42,800 - 39,475 = $3,325 QD will be taxed at 15%.  $6675 QD will be taxed at 0%.

Note that while you are technically "in the 24% tax bracket", none of your income is taxed at 24%, because of the special rate for QD. 

Dividends Question

Thank you for the clear answer.

 

Cheers -

 

george

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