When you have ordinary dividends and qualified dividends (line 3a and 3b on 1040) Are those amounts two separate incomes that should be counted together?

[taxchamp]

Line 3b on the 1040 equals Schedule B “Interest and Ordinary Dividends” line 6 and it includes ordinary dividends (which also includes qualified dividends.)  Because this total shows on 1040 Line 3b, it gives the impression that there is no distinction between non-qualified and qualified dividends.   Similarly, 1040 line 7 includes both short- and long-term gains, again giving the impression that there is no distinction between short- and long-term capital gain tax rates (which we know is not true).  Where you find “relief” is via 1040 Line 16 where your tax due is calculated.  This tax amount is generated by the “Qualified Dividend and Capital Gain Worksheet” where 1040 line 15 is reduced by your qualified dividends and your long-term capital gains.  These two items are summed together on line 4 and line 18 applies the 15% effective tax rate.  Your income, now reduced by the line 4 amount is then taxed against the income tax table.

I would agree with others that the term “ordinary dividends”, because it includes both qualified and non-qualified dividends may not be as clear as it could be.  Suffice it to say, the TurboTax program appears to be properly determining the tax due despite the terminology challenge.  The key each year is to review closely the “Qualified Dividend and Capital Gain Worksheet”.

[campsteraz]

Thanks so much for this detailed explanation of how the tax is calculated.  This addressed my concern.  I appreciate it !