Intuit Academy Tax Practice Exam 2025 – All-in-One Guide for Exam Mastery!

Question: 1 / 400

How are qualified dividends taxed compared to ordinary income?

They are taxed at a higher rate than ordinary income

They are taxed at ordinary income tax rates

They are taxed at capital gains rates

Qualified dividends are indeed taxed at capital gains rates, which is generally more favorable than ordinary income tax rates. This means that instead of being subjected to the higher tax rates that apply to ordinary income, which can reach as high as 37% for the highest income brackets, qualified dividends may be taxed at rates that are typically lower—0%, 15%, or 20%, depending on the taxpayer's income level.

This favorable treatment for qualified dividends is designed to encourage investment and is applicable when specific criteria are met, such as holding the dividend-paying stock for a required period and the dividend being paid by a U.S. corporation or certain qualified foreign corporations. This distinction is important for tax planning and investment strategies, as it can impact the overall tax burden for an individual, particularly those who rely on investment income.

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They are not taxed at all

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