What Is The Dividend Tax Rate | How Much To Pay In 2018

dividend definition

Dividends are given to the company's shareholders as a reward for putting their trust in the company and buying the shares. However, you need to pay tax on the dividends you receive at the different dividend tax rate.

Actually, it's not compulsory to give a dividend to its shareholder. Suppose if any company is giving a dividend to its shareholder from a long period of time then also it is not guaranteed that the company will continue giving a dividend. To give dividend or not it completely depends upon the board of directors of the company. Small companies rarely give dividends. Because most of the money they spend on the growth and expansion of the company. 


What exactly are dividends?

The companies share some amount of money from their profits to its shareholder. This is known as a dividend. It is paid by foreign companies, domestic companies as well as by mutual funds. 

Basically, every share has its own share value and market value. The current value of the share in the stock market is known as the market value of the share. That means the price at which you buy or sell the shares is the market value of the share. The market value of the share continuously changes due to the change in supply and demand.

And every company has got its nominal value which is known as face value. When the company issues their shares, they decide their face value. The face value does not change due to the change in supply and demand. Sometimes it changes only during stock split and consolidation. Market value is not dependent on the face value and vice versa. The use of face value is in the case of accounting and dividend.

There are two types of dividend: 1) Ordinary dividend and 2) Qualified dividend. 

Is dividend received taxable?

Yes, the dividend received is taxable. The dividend is considered as the actual income by the IRS so you need to pay tax on the dividend income. And top of it, all the dividends are taxable and you must report about all the dividend you receive and pay the applicable taxes on your dividend income.

Dividend incomes are taxable in a different way depending upon whether the dividends are qualified or ordinary. The qualified dividends are taxed at a lower rate than the ordinary dividends because it is taxed at the capital gain rate.

So, in conclusion, your dividends are taxed in the same way as your salary or wages are being taxed considering if they are not the qualified one. And to be eligible for this lower tax rate dividends should be paid by the U.S company or the foreign company which has held its position in the U.S stock market.


The dividends tax rate in 2018

The dividend tax rate in 2018 ranges from 10% to 37% which is a little bit less compared in the year 2017. The dividend tax rate 1in 2017 was 10% to 39.6%. For ordinary dividends, the dividends tax rate remains the same as the federal income tax rate. Whereas the qualified dividends are taxed at a 20%, 15%, or a 0% rate, according to the current law.

dividend tax rate 2018

The dividends tax rate on your dividend income depends upon two factors. Firstly, on your overall income and secondly, whether the dividends are qualified or ordinary. And there are different income tax bracket applied for the single filer, joint filer, head of the household filer, and married filing separately.

So if you are a single filer with a total income of $100,000 then you are falling in the 24% tax bracket in 2018. The dividend tax you have to pay on the ordinary dividend is 24 %. 

Similarly, if you are a joint filer with a total income of $ 1000,000, then you fall in the 22% tax bracket in 2018. Take a look at the tax basket table given below to analyze the dividend tax rate: 

The tax bracket for 2018


2018 Tax Bracket For Single Filing
Tax Rate  Income Tax Bracket Capital Gains Rate
10% $0 to $9,525 0%
12% $9,525 to $38,600 0%
12% $38,601 to $38,700 15%
22% $38,701 to $82,500 15%
24% $82,501 to $157,500 15%
32% $157,501 to $200,000 15%
35% $200,001 to $425,800 15%
35% $425,801 to $500,000 20%
37% $500,001 or more 20%


2018 Tax Bracket For Head of Household Filing
Tax Rate  Income Tax Bracket Capital Gains Rate
10% $0 to $13,600 0%
12% $13,601 to $51,700 0%
12% $51,701 to $51,800 15%
22% $51,801 to $82,500 15%
24% $82,501 to $157,500 15%
32% $157,501 to $200,000 15%
35% $200,001 to $452,400 15%
35% $452,401 to $500,000 20%
37% $500,001 or more 20%


2018 Tax Bracket For Married Filing Jointly
Tax Rate  Income Tax Bracket Capital Gains Rate
10% $0 to $19,050 0%
12% $19,051 to $77,200 0%
12% $77,201 to $77,400 15%
22% $77,401 to $165,000 15%
24% $165,001 to $315,000 15%
32% $315,001 to $400,000 15%
35% $400,001 to $479,000 15%
35% $479,001 to $600,000 20%
37% $600,001 or more 20%



2018 Tax Bracket For Married Filing Separately
Tax Rate  Income Tax Bracket Capital Gains Rate
10% $0 to $9,525 0%
12% $9,526 to $38,600 0%
12% $38,601 to $38,700 15%
22% $38,701 to $82,500 15%
24% $82,501 to $157,000 15%
32% $157,001 to $200,000 15%
35% $200,001 to $239,500 15%
35% $239,501 to $300,000 20%
37% $300,001 or more 20%


Do dividend reinvestments get taxed?

Companies provide a dividend to its shareholder in the form of cash or the stocks or the shares. Dividend Reinvestment is nothing but buying the shares/stocks of the same company through the dividend cash received from the company. In simple word, you are going to reinvest your dividend income in order to buy the shares of the same company. 

But even though you reinvest your money, you have to pay tax on the dividend income if you received them in the form of cash. Similarly, on the other hand, the stock dividends are not taxable until the stocks are sold out. But when some company provides both cash and stock dividends and gives you an option to choose between them then even stock dividends are taxable.

Are dividends taxed twice?

This concept comes under double taxation of dividends. When the company makes the profit, either they reinvest in order to grow the business or else distribute to their investor and shareholders as a dividend.
 

double taxation on dividend tax rate

The first taxation occurs at the end of the year when the company pays the tax on their income or earning. Then the profit is given to the shareholders in the form of dividends. Now the second taxation is paid by the investors when they receive the dividends. And as discussed above dividends are taxable, which means the shareholders are paying tax twice on the dividends. Once as the owner of the company that brings the income and second as an individual when you tax on dividend income. Because of this concept, it is said that dividends are taxed twice.   

Do I have to pay tax on US dividends?

If you are a foreign investor, then the tax you have to pay on US dividends is determined by whether you are a resident alien or a non-resident alien.

A resident alien is those who are the foreign-born but having a permanent resident in the United States. They are not U.S. citizen but holds a green card and are lawfully considered as the US resident. On the other hand, the non-resident alien is the non-US citizen who doesn't hold a green card and is mainly in the U.S. for some business purpose for a particular period of time. 



dividend tax rate on us dividend income

So if you fall under non-resident alien with the involvement in business like the stock market and mutual funds, then you have to pay the tax. The dividend tax rate 2018 for the foreign investor is 30 % on the dividend paid by the U.S. companies. Sometimes you will get a lower dividend tax rate depending upon the treaty between your home country and the U.S. So it is better to verify your tax rate through your brokerage firm.

However, if you are a resident alien, you have to pay tax the same as any U.S. citizen. 

  

Prevent Dividend Tax with a Retirement Account 

The dividend is a great source of passive income for the retirees. And putting the dividend earning stocks/shares in the retirement account is one of the best ways to prevent the dividend tax on the dividend income. Having stocks in a retirement account is not taxable. Hence you can reinvest them and grow them without paying tax to the government. 

You need to pay tax on the dividend once it is used for the contribution but it remains tax-free until it's in the retirement saving account.