(2023) 1099-DIV Tax Rate is much higher than even our top-end marginal rate - Why?

Forum|Forum|2 years ago
February 16, 2024
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So .... My understanding is that Non-Qualified Dividends are taxed at ordinary income tax rate. I have a 1099-DIV for $3272.81 that when entered in TT, lowers my federal refund by $ 999 (appears to me to be ~ 30.5% tax rate). It also affects my Colorado refund (Before DIV entry the refund is $1554 and after entry it is $ 1410) which is also much higher than normal (4.4%) CO state tax rate. For reference:

1040

Line 3b Ordinary Dividends: $ 3273

Line 11 AGI: $ 136,787

Line 15 Taxable Income: $ 108822

TurboTax Premier Online

D

DianeW777

Yes, non-qualified dividends are taxed at your regular tax rate so they do not receive special capital gain treatment. If we take the information you provided and calculate the tax on it assuming there are no other capital gains in the equation you can see the results based on the two filing statuses selected. Keep in mind the tax system is a graduated rate, as the income goes up so does the tax rate.

Qualified vs Ordinary Dividends:

Ordinary dividends are payments a public company makes to owners of its common stock shares. It is their share of the company's profits and a reward for holding onto the shares. A qualified dividend is an ordinary dividend that can be reported to the IRS as a capital gain rather than income

The tax would be as follows and the ordinary dividends are being taxed at the highest rate for the filing status:

Single: $13,447 is at the 24% rate - Actual total tax liability = $19,571
Married filing jointly: $19372 is at the 22% rate - Actual total tax liability = $14,446

See the tax rate schedules below for these filing status and this does not take into consideration the credits or payments made through withholding. It does not include the state tax comparison. 2023 Tax Rate Schedules