Stock Dividents & Tax?

Question

Our company president just told us that we are going to get a stock dividends this year. (We work here and are stock holders ) When we receive the dividends, we have to pay a tax. Is there any way to know how much (or %) we need to pay the tax for this dividends? Well, it is not a big money, but we just don't want to spend too much before we pay the tax. Thank you:)

Answer 1

If you own the stock and it is paying a dividend, you will show that on your tax return and pay income tax.  While some dividends are taxed at a lower rate than your wages, to be safe, you should count on paying the same tax as if it were wages.

If you are in the 15% bracket, count on paying 15% of the dividends in tax.  Same for the other brackets.  

In no case would the dividends be taxed at a higher bracket than your wages.

I agree the term "stock dividend" is not what you mean here, because the dividend is paid in cash, not stock.

Answer 2

There are 2 types of dividends -- Ordinary Dividends and Qualified Dividends.  Ordinary Dividends are taxed as ordinary income at your marginal rate.  The typical taxpayer's marginal rate is 15% or 25%.  Qualified Dividends are taxed at the preferential long term capital gains rate.  That rate is normally 15%; however if your marginal rate is already 15% or less, the rate for 2008 and 2009 is 0%.  It will return to the normal rate of 5% in 2010.

Therefore you need to know if the dividends are Qualified Dividends or Ordinary Dividends as well as what your marginal tax rate is to figure what the tax on the dividends will be.  You'll receive a Form 1099-DIV next January that will show the dividends paid, as well as whether they are Ordinary Dividends or Qualified Dividends.  The company may or may not be able to tell you this far in advance if they will be Ordinary or Qualified Dividends.  That call is often made late in the fiscal year.

Answer 3

Yes, you'll pay tax.  You'll get a form 1099-DIV and show the amount on your tax return.

Answer 4

It will be taxed as part of your earnings

Can't you purchase more stock with the dividends, and defer the tax

Answer 5

Stock dividends are not taxable, they just cut the stock into smaller pieces.  Instead of having one big piece, you get two small ones.  If the company president tried to make you think you were really getting something, he was misleading you.

Answer 6

Are you really receiving "stock dividends" or cash "dividends on your stock"?  They are treated differently.

Since you were told that you were going to have to pay tax, you must be getting cash dividends on your stock.  And yes, you will need to pay tax in that case based on you tax bracket which is based on your total income, not just the dividends.  To be safe, I would expect to pay 25%.  It could be that high, but probably not higher, and it could be as low as 0!

If they truly are "stock dividends" they are not taxable.  Stock dividends are given as a reward for owning stock and are given as additional shares.  They need to be kept track of for when you sell them and the original stock, but they are not taxable in the year received.  For example, you own 100 share that you pay $20 a share for.  You company gives you a 10% stock dividend.  You now have 110 shares (100 + 10% of 100).  The you sell all your stock 5 years later for $25 a share.  Your profit that you have to pay capital gains tax on is $5 a share ($25-$20) for the first 100 shares ($500)   PLUS   $25 a share ($25-$0) for the last 10 shares ($250) for a total of $750.  That is why I said  you need to keep track of the 10% stock dividend, but not happens tax-wise until you actually sell the stock you received.

Answer 7

plan on paying upwards of 15% for federal income tax, 5% for the state; depending on your bracket and state, it could be more.  You won't have any payroll taxes, that will be ok.