Question

Tom bought 100 shares of Apple stock at $200 each sixteen months ago, and today Apple stock price is $220. Apple just paid a dividend of $0.75 per share. Tom faces an ordinary income tax rate of 35% and capital gain/qualified dividend tax rate of 18.8%.




How much tax does Tom owe to the IRS on this dividend income?

		$14.1
		$26.25
		$75
		$200

Answer 1

Since the person’s ordinary income tax rate is 35% (but not above 37%), the qualified dividend tax rate would be the maximum of 20%. As the rate 18.8% is lower than 20%, the former rate is applied here.

Amount of dividend = Number of shares × Dividend per share

                                    = 100 × 0.75

                                    = 75

Tax on dividend income = Amount of dividend × 18.8%

                                          = 75 × 18.8%

                                          = $14.1 (Answer)