4.2 Qualified Corporate Dividends Taxed at Favorable Capital Gain Rates
Dividends paid out of current or accumulated earnings of a corporation are taxable (4.5). Stock dividends on common stock (4.6) are generally not taxable, but other types of stock dividends are taxed (4.8).
Dividends from most domestic corporations and many foreign corporations received in 2012 are treated as “qualified dividends,” which are subject to the same favorable rates as net capital gain (the excess of net long-term capital gains over net short-term losses (5.3)); see the Caution on this page concerning years after 2012. The rate for 2012 is either 15% or zero, depending on the rate that would otherwise apply to the dividends. The benefit of the zero or 15% reduced rate is obtained as part of the computation of tax liability on the “Qualified Dividends and Capital Gain Tax Worksheet” in the 2012 instructions for Form 1040 or Form 1040A, or, if required, on the Schedule D Tax Worksheet (5.3). On the Qualified Dividends and Capital Gain Tax Worksheet (or Schedule D Tax Worksheet, if applicable), the 15% rate is applied to qualified dividends and net capital gain that does not escape tax under the zero rate.