Sam and Alex are married and file jointly. Throughout the year, they received dividend income from...

Sam and Alex are married and file jointly. Throughout the year, they received dividend income from two stocks. Stock XYZ paid out a non-qualified dividend (based on timing of ownership relative to the ex-dividend date) of $5,500. Stock ABC instead paid out $3,800 as a qualified dividend. The couple’s only other income during the year was $200,000 in salaries in total. But, they are not considered high income taxpayers. (Assume the tax year is 2020).

a. What was the additional tax Sam and Alex had to pay because of the dividend income from Stock XYZ?

b. What was the additional tax Same and Alex had to pay because of the dividend income from Stock ABC?

Expert Solution

a) Non -qualified dividends are taxed as ordinary income according to federal income tax brackets.

For married couple and filing jointly applicable bracket is $171,051 to $326,600.

Tax rate = 24%

Tax Amount for the bracket is = $29,411 plus 24% of the amount over $171,051.

Here, Question was asked only to calculate the additional tax Sam and Alex had to pay because of the dividend income from Stock XYZ.

Answer is = 5500*24% = $1320

b) The tax rate on qualifying dividends is 0%, 15% and 20% based on income and filing status.

For married couple and filing jointly, these are the tax rates for qualified dividends.

Taxable income	Tax rate on qualified dividend
$0 to $78750	0%
$78,751 to $488,850	15%
%488,851 and more	20%

So, here the applicable tax rate is 15%.

The additional tax Sam and Alex had to pay because of the dividend income from Stock ABC is = $3800*15% = $570

ekkarill92 answered 1 year ago

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