Why is ordinary dividend tax exempt?

[AndreaG · Accepted solution]

Ordinary dividends are not tax exempt. Ordinary dividends are taxed at ordinary tax rates. Of those ordinary dividends that are reported in box 1a of your 1099-DIV, some of these dividends are qualified. Qualified dividends are reported in box 1b and these dividends are taxed as long term capital gains and this is a lower tax rate than the ordinary tax rate. 

The tax rate that you pay for qualified dividends depends on the tax bracket that you are in. For example, if your tax bracket is 15% or less, your qualified dividends will be tax free. Please refer to the following Turbo Tax article under the heading, "ordinary and qualified dividends" for additional clarification. https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Forms/What-Is-IRS-Form-1099-DIV--Dividends-an...